10-K - OVBC - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 0-20914

OHIO VALLEY BANC CORP.

(Exact Name of Registrant as Specified in its Charter)

Ohio	31-1359191
(State of incorporation)	(I.R.S. Employer Identification No.)
420 Third Avenue
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Gallipolis, Ohio	45631
(Address of principal executive offices)	(ZIP Code)

(740) 446-2631

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common shares, without par value	OVBC	The NASDAQ Stock Market LLC (The NASDAQ Global Market)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES ◻ NO ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES □ NO ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☑ NO ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☑ NO ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer □	Accelerated filer □
Non-accelerated filer ☑	Smaller reporting company ☑
Emerging growth company □

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES □ NO ☑

Based on the closing sales price of $22.55 per share on June 30, 2020, the aggregate market value of the issuer’s shares held by non-affiliates on such date was $97,451,268. For this purpose, shares held by non-affiliates are all outstanding shares except those held by the directors and executive officers of the issuer and those held by The Ohio Valley Bank Company as trustee with respect to which The Ohio Valley Bank Company has sole or shared voting or dispositive power.

The number of common shares of the registrant outstanding as of February 28, 2021, was 4,787,446.

Documents Incorporated By Reference:

(1)	Portions of the 2020 Annual Report to Shareholders of Ohio Valley Banc Corp. (Exhibit 13) are incorporated by reference into Part I, Item 1 and Part II, Items 5, 6, 7, 7A, 8 and 9A.
(2)	Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 19, 2021, are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14.

PART I

ITEM 1 - BUSINESS

Organizational History and Subsidiaries

Ohio Valley Banc Corp. (“Ohio Valley” or the “Company”) is an Ohio corporation registered as a financial holding company pursuant to the Bank Holding Company Act of 1956, as amended (“BHC Act”). Ohio Valley was incorporated under the laws of the State of Ohio on January 8, 1992 and began conducting business on October 23, 1992. The principal executive offices of Ohio Valley are located at 420 Third Avenue, Gallipolis, Ohio 45631. Ohio Valley’s common shares are listed on The NASDAQ Global Market under the symbol “OVBC.” Ohio Valley has one banking subsidiary, The Ohio Valley Bank Company (the “Bank”). The Bank has one wholly-owned subsidiary, Ohio Valley REO, LLC, an Ohio limited liability company (“Ohio Valley REO”), to which the Bank transfers certain real estate acquired by the Bank through foreclosure for sale by Ohio Valley REO. Ohio Valley also owns three nonbank subsidiaries, Loan Central, Inc., which engages in lending (“Loan Central”), Ohio Valley Financial Services Agency, LLC, which is used to facilitate the receipt of commissions on insurance sold by the Bank and Loan Central (“Ohio Valley Financial Services”), and OVBC Captive, Inc., a limited purpose property and casualty insurance company (“OVBC Captive”). Ohio Valley also owns one wholly-owned subsidiary trust formed solely to issue a trust preferred security. Ohio Valley and its subsidiaries are collectively referred to as the “Company.” Ohio Valley’s financial service operations are considered by management to be aggregated in two reportable segments: banking and consumer finance. Total revenues from the banking segment, which accounted for the majority of the Company’s total revenues, totaled 94.3%, 94.2% and 92.9% of total consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively.

Interested readers can access Ohio Valley’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), through Ohio Valley’s Internet website at www.ovbc.com (this uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate the information contained on Ohio Valley’s website into this Annual Report on Form 10-K). These reports can be accessed free of charge through a link to The NASDAQ Stock Market, LLC’s website from Ohio Valley’s website as soon as reasonably practicable after Ohio Valley electronically files such materials with, or furnishes them to, the Securities and Exchange Commission (“SEC”).

Business of Ohio Valley

As a financial holding company registered under the BHC Act, Ohio Valley’s primary business is community banking. As of December 31, 2020, Ohio Valley’s consolidated assets approximated to $1,050,608,000, and total shareholders’ equity approximated to $136,324,000.

Ohio Valley is also permitted to engage in certain non-banking activities, such as securities underwriting and dealing activities, insurance agency and underwriting activities and merchant banking/equity investment activities. Ohio Valley presently has an insurance agency, Ohio Valley Financial Services, which is used to facilitate the receipt of commissions on insurance sold by the Bank and Loan Central. Ohio Valley also has a captive insurance company, OVBC Captive, that is engaged in the business of providing commercial property and various liability insurance to the Company and related entities. Management will consider opportunities to engage in additional nonbanking activities as they arise.

Information about the Company’s business segments is set forth in Note R to the Company’s Financial Statements located in Ohio Valley’s 2020 Annual Report to Shareholders.

Business of Bank Subsidiary

A substantial portion of Ohio Valley’s revenue is derived from cash dividends paid by the Bank. The Bank presently has fifteen offices located in Ohio and West Virginia, all but one offer automatic teller machines (“ATMs”). Eleven of these offices also offer drive-up services. The Bank accounted for substantially all of Ohio Valley’s consolidated assets at December 31, 2020.

The Bank is primarily engaged in commercial and retail banking. The Bank is a full-service financial institution offering a blend of commercial and consumer banking services within southeastern Ohio as well as western West Virginia. The banking services offered by the Bank include the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As part of its lending function, the Bank offers credit card services. The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). In addition to originating loans, the Bank invests in United States government and agency obligations, interest-bearing deposits in other financial institutions, and other investments permitted by applicable law.

The Bank began offering trust services in 1981. The trust department acts as trustee under wills, trusts and profit sharing plans, as executor and administrator of estates, and as guardian for estates of minors and incompetents. In addition, the trust department performs a variety of investment and security services where the Bank acts as an agent on behalf of the client. Trust services are available to all customers of the Bank.

The Bank also offers Internet banking to its customers, allowing customers to check personal account balances, receive information about transactions within their accounts, make transfers between accounts, stop payment on a check, and reorder checks all from their own computer. Customers may also pay bills online and can make payments to virtually any business or individual. Furthermore, the Bank offers other financial management online services, such as cash management and news updates related to repossession auctions, current rates and general bank news.

In January 2020, the Bank began offering Tax Refund Advance Loans (“TALs”) to Loan Central tax customers. A TAL represents a short-term loan offered by OVB to tax preparation customers of Loan Central. Previously, Loan Central offered and originated tax refund anticipation loans that represented a large composition of its annual earnings. However, new Ohio laws that became effective in April 2019 placed numerous restrictions on short-term and small loans extended by certain non-bank lenders in Ohio. As a result, Loan Central no longer offers the service to its tax preparation customers, but it is able to do so through the Bank. After Loan Central prepares a customer’s tax return, the customer is offered the opportunity to have immediate access to a portion of the anticipated tax refund by entering into a TAL with the Bank. As part of the process, the tax customer completes a loan application and authorizes the expected tax refund to be deposited with the Bank once it is issued by the IRS. Once the Bank receives the tax refund, the refund is used to repay the TAL and Loan Central’s tax preparation fees, then the remainder of the refund is remitted to Loan Central’s tax customer.

Business of Loan Central

Loan Central is engaged in consumer finance, offering smaller balance personal and mortgage loans generally to individuals with higher credit risk history. Loan Central’s line of business also includes seasonal tax preparation services as part of the TAL lending activity previously discussed. Loan Central presently has six offices, all located within southeastern Ohio.

Business of Financial Services Subsidiaries

Ohio Valley Financial Services is a licensed insurance agency that is used to facilitate the receipt of commissions on insurance sold by the Bank and Loan Central. Ohio Valley Financial Services is licensed by the State of Ohio Department of Insurance.

OVBC Captive is a pure captive insurance company engaged in providing commercial property and various liability insurance to the Company and affiliates. OVBC Captive has been approved under the guidelines of the State of Nevada Division of Insurance.

Variable Interest Entities

Ohio Valley owns one special purpose entity, Ohio Valley Statutory Trust III, which has issued $8,500,000 in trust preferred securities. Ohio Valley has issued a like amount of subordinated debentures to the Trust in exchange for the proceeds of the issuance of the trust preferred securities. Ohio Valley used the proceeds to provide additional capital to the Bank to support growth. Further detail on Ohio Valley Statutory Trust III is located in Ohio Valley’s 2020 Annual Report to Shareholders under “Note J – Subordinated Debentures and Trust Preferred Securities,” in the notes to the Company’s consolidated financial statements for the fiscal year ended December 31, 2020.

Financial Information

Financial information regarding the Company as of December 31, 2020 and 2019 and results of operations for the last three fiscal years are contained in the Company’s consolidated financial statements for the fiscal year ended December 31, 2020.

Lending Activities

The Company’s loan portfolio increased $75,890,000 to finish at $848,664,000 in 2020. The increase in total loans was primarily due to originations of new loans occurring within the Company’s commercial loan portfolio. The loan portfolio is comprised of commercial (commercial real estate and commercial and industrial), residential real estate and consumer loans, including credit card and home equity loans. During 2020, commercial loans increased $88,982,000, or 27.6%, while consumer loans decreased $8,317,000, or 5.9%, and residential real estate loans decreased $4,775,000, or 1.5%, as compared to 2019. Commercial loan growth was impacted by the originations of Paycheck Protection Program loans totaling $35,141,000 during 2020, of which, $27,933,000 were still outstanding at December 31, 2020. Consolidated interest and fee revenue from loans accounted for 74.99%, 76.94%, and 76.31% of total consolidated revenues in 2020, 2019 and 2018, respectively. The Company’s market area for lending is primarily located in southeastern Ohio and portions of western West Virginia. The Company believes that there is no significant concentration of loans to borrowers engaged in the same or similar industries and does not have any loans to foreign entities.

Residential Real Estate Loans

The Company’s residential real estate loans consist primarily of one- to four-family residential mortgages and carry many of the same customer and industry risks as the commercial loan portfolio. Real estate loans to consumers are secured primarily by a first lien mortgage or deed of trust with evidence of title in favor of the Bank. The Company also requires proof of hazard insurance, required at the time of closing, with the Bank or Loan Central named as the mortgagee and as loss payee. The Company generally requires the amount of a residential real estate loan be no more than 80% of the purchase price or the appraisal value (whichever is the lesser) of the real estate securing the loan, unless private mortgage insurance is obtained by the borrower for the percentage exceeding 80%. These loans generally range from one-year adjustable to thirty-year fixed-rate mortgages. Residential real estate loans also consist of the Company’s warehouse lending activity. Warehouse lending consists of a line of credit provided by the Bank to another mortgage lender that makes loans for the purchase of one- to four-family residential real estate properties. The mortgage lender eventually sells the loans and repays the Bank. The Company’s market area for real estate lending is primarily located in southeastern Ohio and portions of western West Virginia. The Bank continues to sell a portion of its new fixed-rate real estate loan originations to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) to enhance customer service and loan pricing. Secondary market sales of these real estate loans, which have fixed rates with fifteen- to thirty-year terms, have assisted in meeting the consumer preference for long-term fixed-rate loans as well as minimized the Bank’s exposure to interest rate risk.

Commercial Loans

The Company’s commercial loan portfolio consists of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include service, retail and wholesale merchants. Collateral securing these loans includes equipment, inventory, stock, commercial real estate and rental property. Commercial loans are considered to have a higher level of risk compared to other types of loans (i.e., single-family residential mortgages, installment loans and credit card loans), although care is taken to minimize these risks. Numerous risk factors impact this portfolio, such as the economy, new technology, labor rates, cash flow, financial structure and asset quality. The payment experience on commercial loans is dependent on adequate cash flows from the business to service both interest and principal due. Thus, commercial loans may be more sensitive to adverse conditions in the economy generally or adverse conditions in a specific industry. The Company diversifies risk within this portfolio by closely monitoring industry concentrations and portfolios to ensure that it does not exceed established lending guidelines. Underwriting standards require a comprehensive credit analysis and independent evaluation of virtually all larger balance commercial loans prior to approval. The Bank’s loan committee will review and approve all new commercial loan originations that exceed the loan officer group’s highest lending limit according to the following thresholds: up to $750,000 unsecured, up to $3,000,000 secured, and up to $3,000,000 aggregate. The Executive Committee of the Bank’s Board of Directors will review and approve all new commercial loan originations up to the legal lending limit of the Bank.

Consumer Loans

Consumer loans are secured by automobiles, mobile homes, recreational vehicles and other personal property. Personal loans and unsecured credit card receivables are also included as consumer loans. The Company makes installment credit available to customers in their primary market area of southeastern Ohio and portions of western West Virginia. Credit approval for consumer loans requires demonstration of sufficient income to repay principal and interest due, stability of employment, a positive credit record and sufficient collateral for secured loans. The Company monitors the risk associated with these types of loans by monitoring factors such as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. A qualified compliance officer is responsible for monitoring the performance of his or her respective consumer portfolio and updating loan personnel. The Company makes credit life insurance and health and accident insurance available to all qualified borrowers, thus reducing their risk of loss when their income is terminated or interrupted. The Company reviews its respective consumer loan portfolios monthly to charge off loans which do not meet applicable standards. Credit card accounts are administered in accordance with the same standards as those applied to other consumer loans. Consumer loans generally involve more risk as to collectibility than mortgage loans because of the type and nature of collateral and, in certain instances, the absence of collateral. As a result, consumer lending collections are dependent upon the borrower’s continued financial stability and are adversely affected by job loss, divorce or personal bankruptcy and by adverse economic conditions. Also included in the category of consumer loans are home equity loans. Home equity lines of credit are generally made as second mortgages and charged a variable interest rate. Home equity lines are written with ten-year terms but are reviewed annually. The Company’s consumer loans also consist of seasonal TAL loans offered by the Bank during the tax season. As previously discussed, TAL loans loans are short-term, cash advances against a customer's anticipated income tax refund.

Underwriting Standards

The Company’s underwriting guidelines and standards are updated periodically and are presented to the Board of Directors of the holding company for approval. The purposes of the standards and guidelines are to grant loans on a sound and collectible basis; to invest available funds in a safe, profitable manner; to serve the legitimate credit needs of the Company’s primary market areas; and to ensure that all loan applicants receive fair and equal treatment in the lending process. It is the intent of the underwriting guidelines and standards to: minimize losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program. The above guidelines are adhered to and subject to the experience, background and personal judgment of the loan officer assigned to the loan application. A loan officer may grant, with justification, a loan with variances from the underwriting guidelines and standards. However, a loan officer may not exceed his or her respective lending authority without obtaining the prior, proper approval from a superior.

Investment Activities

The Company’s investment policy stresses the management of the investment securities portfolio, which includes both securities held to maturity and securities available for sale, to maximize the return over the long-term in a manner that is consistent with good banking practices and relative safety of principal. The Company’s investment portfolio is comprised of United States Government sponsored entity and mortgage-backed securities as well as obligations of state and political subdivisions. Revenues from interest and dividends on securities accounted for 4.68%, 5.51% and 5.48% of total consolidated revenues in 2020, 2019 and 2018, respectively. The

  Company currently does not engage in trading account activity.

Funding Activities

Sources of funds for loan and investment activities include “core deposits.” Core deposits include demand deposits, savings, money market, NOW accounts, and certificates of deposit less than $100,000. The Company will also utilize certificates of deposit and money market deposits from wholesale markets, when necessary, to support growth in assets. Short- and long-term advances from the Federal Home Loan Bank have also been a significant source of funding. Further funding has come from one trust preferred securities offering through Ohio Valley Statutory Trust III, totaling $8,500,000. Ohio Valley used the proceeds to provide additional capital to the Bank to support growth.

Electronic Refund Check / Electronic Refund Deposit Activities

The Company began its participation in a tax refund service in 2006 by serving as a facilitator for the clearing of tax refunds for a single tax refund product provider. An agreement between the Bank and the original provider required the Bank to process electronic refund checks ("ERCs") and electronic refund deposits ("ERDs") presented for payment on behalf of taxpayers containing taxpayer refunds. The Bank, in turn, would receive a fee paid by the provider for each transaction that was processed by the Bank. In 2015, the agreement between the Bank and the original provider, which had a term ending at December 31, 2019, was assumed by MetaBank. MetaBank ceased utilizing the services of the Bank at the end of 2018. Due to the absence of tax processing activity, the Bank experienced a significant decline in ERC/ERD fee income in 2019 and 2020. On March 10, 2020, the Bank announced that it had entered into a new agreement with a third-party to process future electronic refund checks and deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The new agreement provides that the Bank will process refunds for five tax seasons, beginning with the 2021 tax season and extending through the 2025 tax season.

Competition

Competition among providers of financial products and services continues to increase, with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives. The principal factors of competition for the Company’s banking business are the rates of interest charged for loans, the rates of interest paid for deposits, the fees charged for services and the availability and quality of services. The market area for the Bank is concentrated primarily in the Gallia, Meigs, Jackson, Vinton and Pike Counties of Ohio, as well as the Mason and Cabell Counties of West Virginia. Some additional business originates from the surrounding Ohio counties of Lawrence, Scioto, Athens and Ross. Competition for deposits and loans comes primarily from local banks and savings associations, although some competition is also experienced from local credit unions and insurance companies. The Company also competes with non-financial institutions that offer financial products and services. Some of the Company’s competitors are not subject to the same level of regulation and oversight that is required of banks and bank holding companies. As a result, some of these competitors may have lower cost structures.

Loan Central’s market presence further strengthens the Company’s ability to compete in the Gallia, Jackson, Lawrence and Pike Counties by serving a consumer base that may not meet the Bank’s credit standards. Loan Central also operates in Scioto and Ross counties of Ohio, which are outside the Bank’s primary market area. With the exception of TAL loans related to Loan Central’s tax preparation activities and the Bank’s refund advance activities, the Company’s business is not seasonal, nor is it dependent upon a single or small group of customers.

Historically, larger regional institutions, with substantially greater resources, have been generating a growing market presence. Yet, in recent years, the financial industry continues to consolidate, which affects competition by eliminating some regional and local institutions, while strengthening the acquiring companies. Many financial institutions have experienced significant challenges as a result of the economic crisis, which resulted in bank failures and significant intervention from the United States Government.

Overall, the Company believes it is able to compete effectively in both current and newer markets. There can be no assurance, however, that our ability to market products and services successfully or to obtain adequate yield on our loans will not be impacted by the nature of the competition that now exists or may later develop.

Supervision and Regulation

The following is a summary of certain statutes and regulations affecting Ohio Valley as well as the Bank and Loan Central. This summary is qualified in its entirety by reference to such statutes and regulations. The regulation of financial holding companies and their subsidiaries is intended primarily for the protection of consumers, depositors, borrowers, the Deposit Insurance Fund (“DIF”) and the banking system as a whole, and not for the protection of shareholders. Applicable laws and regulations restrict permissible activities and investments and require actions to protect loan, deposit, brokerage, fiduciary and other customers, as well as the DIF. They also may restrict Ohio Valley’s abilty to repurchase its common shares or to receive dividends from the Bank and impose capital adequacy and liquidity requirements.

Regulation of Financial Holding Company

Ohio Valley is subject to the requirements of the BHC Act and to the reporting requirements of, and examination and regulation by, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Federal Reserve Board has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, issue cease and desist or removal orders, and require that a bank holding company divest subsidiaries (including its banking subsidiaries). In general, the Federal Reserve Board may initiate enforcement action for violations of laws and regulations and unsafe or unsound practices.

A bank holding company is required to serve as a source of financial strength to each subsidiary bank and to commit resources to support those subsidiary banks. The Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to the shareholders of the bank holding company if the Federal Reserve Board believes the payment would be an unsafe or unsound practice. The Federal Reserve Board also requires bank holding companies to provide advance notification of planned dividends under certain circumstances.

The BHC Act requires the prior approval of the Federal Reserve Board in any case where a bank holding company proposes to:

•	acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by it;
•	acquire all or substantially all of the assets of another bank or bank holding company; or
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•	merge or consolidate with any other bank holding company.
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Holding Company Activities

Ohio Valley is a financial holding company, which permits it to engage in activities beyond those permitted for traditional bank holding companies. A qualifying bank holding company may elect to become a financial holding company and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and not otherwise permissible for a bank holding company, if: (i) the holding company is "well managed" and "well capitalized" and (ii) each of its subsidiary banks (a) is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 (“FDIA”) prompt corrective action provisions, (b) is well managed, and (c) has at least a "satisfactory" rating under the Community Reinvestment Act of 1977, as amended (the “CRA”). No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

Financial holding companies may engage in a wide variety of financial activities, including any activity that the Federal Reserve Board and the Treasury Department consider financial in nature or incidental to financial activities, and any activity that the Federal Reserve Board determines complementary to a financial activity and which does not pose a substantial safety and soundness risk. These activities include securities underwriting, dealing, and market making activities, sponsoring mutual funds and investment companies, insurance and underwriting activities and merchant banking activities. Because it has authority to engage in a broad array of financial activities, a financial holding company may have several affiliates that are functionally regulated by financial regulators other than the Federal Reserve Board, such as the SEC and state insurance regulators.

If a financial holding company or a subsidiary bank fails to meet the requirements for the holding company to remain a financial holding company, the financial holding company must enter into a written agreement with the Federal Reserve Board within 45 days to comply with all applicable capital and management requirements. Until the Federal Reserve Board determines that the holding company and its subsidiary banks meet the requirements, the Federal Reserve Board may impose additional limitations or conditions on the conduct or activities of the financial holding company or any affiliate that the Federal Reserve Board finds to be appropriate or consistent with federal banking laws. If the deficiencies are not corrected within 180 days, the financial holding company may be required to divest ownership or control of all banking subsidiaries. If restrictions are imposed on the activities of the holding company, such restrictions may not be made publicly available pursuant to confidentiality regulations of the banking regulators.

Loan Central is supervised and regulated by the State of Ohio Department of Financial Institutions, Division of Consumer Finance (“ODFI”). Ohio Valley Financial Services is supervised and regulated by the State of Ohio Department of Insurance. OVBC Captive is supervised and regulated by the State of Nevada Division of Insurance. The insurance laws and regulations applicable to insurance agencies, including Ohio Valley Financial Services and OVBC Captive, require education and licensing of individual agents and agencies, require reports and impose business conduct rules.

The Coronavirus Aid, Relief, and Economic Security Act of 2020

In response to the novel COVID-19 pandemic (“COVID-19”), the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”), was signed into law on March 27, 2020, to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as Ohio Valley and the Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with direct supervisory jurisdiction over Ohio Valley and the Bank. Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES Act. For example, on December 27, 2020, the Consolidated Appropriations Act (the “CAA”) was signed into law, which, among other things, allowed certain banks to temporarily postpone implementation of the current expected credit loss (“CECL”) model (accounting standard), which is described below. Ohio Valley is continuing to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to COVID-19.

The CARES Act amended the loan program of the Small Business Administration (the “SBA”), in which the Bank participates, to create a guaranteed, unsecured loan program, the Paycheck Protection Program (the “PPP”), to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which, among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of COVID-19, additional legislation was enacted authorizing the SBA to resume accepting PPP applications on July 6, 2020, and extending the PPP application deadline to August 8, 2020. As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto. On September 29, 2020, the federal bank regulatory agencies issued a final rule that neutralizes the regulatory capital and liquidity coverage ratio effects of participating in certain COVID-19 liquidity facilities due to the fact there is no credit or market risk in association with exposures pledged to such facilities. As a result, the final rule supports the flow of credit to households and businesses affected by COVID-19.

The CARES Act encouraged the Federal Reserve Board, in coordination with the Secretary of the Treasury, to establish or implement various programs to help mitigate the adverse effects of COVID-19 on midsize businesses, nonprofits, and municipalities. In April 2020, the Federal Reserve Board established the Main Street Lending Program (“MSLP”) to implement certain of these recommendations. The MSLP supported lending to small and medium-sized businesses that were in sound financial condition before the onset of COVID-19. On November 19, 2020, Treasury Secretary Steven Mnuchin indicated that he would not reauthorize extending the MSLP past December 31, 2020. However, the Federal Reserve Board extended the program to January 8, 2021, in order to process loans that were submitted on or before December 14, 2020. The program ended on January 8, 2021.

Economic Growth, Regulatory Relief and Consumer Protection Act

On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was enacted, which repealed or modified certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (“Dodd-Frank Act”), and eased regulations on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding companies with consolidated assets of less than $100 billion, including Ohio Valley, are no longer subject to enhanced prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including Ohio Valley, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with assets in excess of $50 billion and so did not apply to the Company even before the enactment of the Regulatory Relief Act.

Regulation of Ohio State Chartered Banks

As an Ohio state-chartered bank that is a member of the Federal Reserve Bank of Cleveland (“FRB”), the Bank is supervised and regulated primarily by the ODFI and the Federal Reserve Board. The Bank is also subject to the regulations of the Consumer Financial Protection Bureau (the “CFPB”), which has broad authority to adopt and enforce consumer protection regulations.

The Bank’s deposits are insured up to applicable limits by the FDIC, and the Bank is subject to the applicable provisions of the FDIA and certain regulations of the FDIC.

Various requirements and restrictions under the laws of the United States, the State of Ohio and the State of West Virginia affect the operations of the Bank, including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, limitations on branching and increasingly extensive consumer protection laws and regulations.

Consumer Protection Laws and Regulations

Banks are subject to regular examination to ensure compliance with federal statutes and regulations applicable to their business, including consumer protection statutes and implementing regulations. The Dodd-Frank Act established the CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services. The CFPB has adopted numerous rules with respect to consumer protection laws and has commenced related enforcement actions. The following are just a few of the consumer protection laws applicable to the Bank:

•	Community Reinvestment Act of 1977: imposes a continuing and affirmative obligation to fulfill the credit needs of its entire community, including low- and moderate-income<br> neighborhoods.
•	Equal Credit Opportunity Act: prohibits discrimination in any credit transaction on the basis of any of various criteria.
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•	Truth in Lending Act: requires that credit terms are disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably.
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•	Fair Housing Act: makes it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of any of certain criteria.
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•	Home Mortgage Disclosure Act: requires financial institutions to collect data that enables regulatory agencies to determine whether the financial institutions are serving<br> the housing credit needs of the communities in which they are located.
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•	Real Estate Settlement Procedures Act: requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits<br> abusive practices that increase borrowers’ costs.
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•	Privacy provisions of the Gramm-Leach-Bliley Act: requires financial institutions to establish policies and procedures to restrict the sharing of non-public customer data<br> with non-affiliated parties and to protect customer information from unauthorized access.
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The banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of specific banking or consumer finance law.

On July 22, 2020, the CFPB issued a final small dollar loan rule related to payday, vehicle title and certain high cost installment loans (the “Small Dollar Rule”) that modified a former rule that was issued in November 2013. Specifically, the Small Dollar Rule revokes provisions contained in the 2013 rule that: (i) provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms; (ii) prescribe mandatory underwriting requirements for making the ability-to-repay determination; (iii) exempt certain loans from mandatory underwriting requirements; and (iv) establish related definitions, reporting, and recordkeeping requirements.

Further, the federal bank regulatory agencies issued interagency guidance on May 20, 2020, to encourage banks, savings associations, and credit unions to offer responsible small-dollar loans to customers for consumer and small business purposes. The Small Dollar Rule did not have a material effect on Ohio Valley’s financial condition or results of operations on a consolidated basis in 2020.

Capital Requirements

Financial institutions and their holding companies are required to maintain capital as a way of absorbing losses that can, as well as losses that cannot, be predicted. The Federal Reserve Board has adopted risk-based capital guidelines for financial holding companies as well as state banks that are members of a Federal Reserve Bank. The Office of the Comptroller of the Currency (“OCC”) and the FDIC have adopted risk-based capital guidelines for national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy and incentivizes holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

Capital rules applicable to smaller banking organizations (the “Basel III Capital Rules”), which also implement certain of the provisions of the Dodd-Frank Act, became effective commencing on January 1, 2015. Compliance with the new minimum capital requirements was required effective January 1, 2015, while a new capital conservation buffer and deductions from common equity capital phased in from January 1, 2016, through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015, through January 1, 2019.

The rules include (i) a minimum common equity tier 1 capital ratio of 4.5%, (ii) a minimum tier 1 capital ratio of 6.0%, (iii) a minimum total risk-based capital ratio of 8.0%, and (iv) a minimum tier 1 leverage ratio of 4.0%.

Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.

Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred securities that have been grandfathered (but which are not otherwise permitted), and limited amounts of minority interests in the form of additional tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to specified eligibility criteria, less applicable deductions.

The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).

Under the guidelines, capital is compared to the relative risk included in the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter.

In December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under CECL. The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model. Concurrent with the enactment of the CARES Act, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. On August 26, 2020, the federal banking agencies issued a final rule that made certain technical changes to the interim final rule, including expanding the pool of eligible institutions. The changes in the final rule applied only to those banking organizations that elected the CECL transition relief provided for under the rule.

Federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks. Under these regulations, institutions that become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Each such institution is also required to file a capital plan with its primary federal regulator, and its holding company must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized.

In accordance with the Basel III Capital Rules, in order to be “well-capitalized” under the prompt corrective action guidelines, a bank must have a common equity tier 1 capital ratio of at least 6.5%, a total risk-based capital ratio of at least 10.0%, a tier 1 risk-based capital ratio of at least 8.0% and a leverage ratio of at least 5.0%, and the bank must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level or any capital measure. At December 31, 2020, the Bank met the capital ratio requirements to be deemed “well-capitalized” according to the guidelines described above.

A bank with a capital level that might qualify for well capitalized or adequately capitalized status may nevertheless be treated as though the bank is in the next lower capital category if the bank’s primary federal banking supervisory authority determines that an unsafe or unsound condition or practice warrants that treatment. A bank’s operations can be significantly affected by its capital classification under the prompt corrective action rules. For example, a bank that is not well capitalized generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market without advance regulatory approval. These deposit-funding limitations can have an adverse effect on the bank’s liquidity. At each successively lower capital category, an insured depository institution is subject to additional restrictions. Undercapitalized banks are required to take specified actions to increase their capital or otherwise decrease the risks to the DIF. Bank regulatory agencies generally are required to appoint a receiver or conservator within 90 days after a bank becomes critically undercapitalized with a leverage ratio of less than 2.0%. The FDIA provides that a federal bank regulatory authority may require a bank holding company to divest itself of an undercapitalized bank subsidiary if the agency determines that divestiture will improve the bank’s financial condition and prospects.

Regulations of the Federal Reserve Board generally require a financial holding company to maintain total risk-based capital of 10.0% and tier 1 risk-based capital of 6.0%. If, however, a bank holding company satisfies the requirements of the Federal Reserve Board’s Small Bank Holding Company and Small Savings and Loan Holding Company Policy Statement (the “SBHCP”), the holding company is not required to meet the consolidated capital requirements. As amended effective in September 2018, the SBHCP requires that the holding company have assets of less than $3 billion, that it meet certain qualitative requirements, and that all of the holding company’s bank subsidiaries meet all bank capital requirements. As of December 31, 2020, Ohio Valley was deemed to meet the SBHCP requirements and so was not required to meet consolidated capital requirements at the holding company level.

Limits on Dividends

The ability of a bank holding company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends that may be declared by its subsidiary banks and other subsidiaries. The Federal Reserve Board also expects Ohio Valley to serve as a source of strength to the Bank, which may require it to retain capital for further investments in the Bank, rather than for dividends for shareholders of Ohio Valley. The Bank may not pay dividends to Ohio Valley if, after paying such dividends, it would fail to meet the required capital levels. Dividends are also subject to limitations if the Company or the Bank fails to hold the required capital conservation buffer. The Bank must have the approval of its regulatory authorities if a dividend in any year would cause the total dividends for that year to exceed the sum of its current year’s net profits and retained net profits for the preceding two years, less required transfers to surplus. Under Ohio law, the Bank may pay a dividend from surplus only with the approval of its shareholders and the approval of the Superintendent of Financial Institutions. Payment of dividends by the Bank may be restricted at any time at the discretion of its regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice or if necessary to maintain adequate capital for the Bank. These provisions could have the effect of limiting Ohio Valley’s ability to pay dividends on its outstanding common shares.

In addition, Federal Reserve Board policy requires Ohio Valley to provide notice to the FRB in advance of the payment of a dividend to Ohio Valley’s shareholders under certain circumstances, and the FRB may disapprove of such dividend payment if the FRB determines the payment would be an unsafe or unsound practice.

Dividend restrictions are also listed within the provisions of Ohio Valley’s trust preferred security arrangements. Under the provisions of these agreements, the interest payable on the trust preferred securities is deferral for up to five years and any such deferral would not be considered a default. During any period of deferral, Ohio Valley would be precluded from declaring or paying dividends to its shareholders or repurchasing any of its common stock.

Deposit Insurance Assessments

The FDIC is an independent federal agency which insures deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the safety and soundness of the financial institution industry. The deposits of the Bank are insured up to statutorily prescribed limits by the FDIC, generally up to a maximum of $250,000 per separately insured depositor.

As insurer, the FDIC is authorized to conduct examinations of and to require reporting by insured institutions, including the Bank, to prohibit any insured institution from engaging in any activity the FDIC determines by regulation or order to pose a threat to the DIF, and to take enforcement actions against insured institutions. The FDIC may terminate insurance of deposits of any institution if it finds that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or other regulatory agency.

The FDIC assesses a quarterly deposit insurance premium on each insured institution based on risk characteristics of the institution and may also impose special assessments in emergency situations. The premiums fund the DIF. Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (“DRR”), which is the amount in the DIF as a percentage of all DIF insured deposits. In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. Although the FDIC’s rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets of $10 billion or more to be paid until the DRR reached 1.35%. The DRR reached 1.35% on September 30, 2018. The rules further changed the method of determining risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk. The rules also provide assessment credits to banks with assets of less than $10 billion for the portion of their assessments that contributed to the increase of the DRR to 1.35%. On June 30, 2019, the DRR reached 1.40%, and the FDIC applied small bank assessment credits to quarterly assessment invoices, beginning with the second quarter assessment payable in September 2019. In addition, the FDIC announced that such credits would continue to be applied as long as the DRR is at least 1.35%, instead of 1.38%, as was originally announced.

Insurance of deposits may be terminated by the FDIC upon a finding that the insured institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the bank's regulatory agency. Notice would be given to all depositors before the deposit insurance was terminated.

Community Reinvestment Act

The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to hep meet the credit needs of its market areas by, among other things, providing credit or other financial assistance to low and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA. As of its most recent evaluation, the Bank was assigned an overall CRA rating of “Satisfactory.”

Customer Privacy Protections

The Bank is subject to regulations limiting the ability of financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated party.

Patriot Act

The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorist Act of 2001, as amended (the “Patriot Act”), and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. The Company has established policies and procedures to comply with the requirements of the Patriot Act.

Office of Foreign Assets Control Regulation

The United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. Ohio Valley is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

Cybersecurity

In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack. If Ohio Valley fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. Ohio Valley expects this trend of state-level activity in those areas to continue and is continually monitoring developments in the states in which our customers are located.

In the ordinary course of business, Ohio Valley relies on electronic communications and information systems to conduct its operations and to store sensitive data. Ohio Valley employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. Ohio Valley employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of Ohio Valley’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, Ohio Valley has not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, Ohio Valley’s systems and those of its customers and third-party service providers are under constant threat and it is possible that Ohio Valley could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

Employees

As of December 31, 2020, Ohio Valley and its subsidiaries had approximately 270 employees and officers and 264 full-time equivalent employees and officers. Management considers its relationship with its employees and officers to be good.

Other Information

Management anticipates no material effect upon the capital expenditures, earnings and competitive position of the Company by reason of any laws regulating or protecting the environment. Ohio Valley believes that the nature of the operations of its subsidiaries has little, if any, environmental impact. Ohio Valley, therefore, anticipates no material capital expenditures for environmental control facilities in its current fiscal year or for the foreseeable future.

The Bank and Loan Central may be required to make capital expenditures related to properties which they may acquire through foreclosure proceedings in the future. However, the amount of such capital expenditures, if any, is not currently determinable.

Neither Ohio Valley nor its subsidiaries have any material patents, trademarks, licenses, franchises or concessions. No material amounts have been spent on research activities, and no employees are engaged full-time in research activities.

Financial Information About Foreign and Domestic Operations and Export Sales

Ohio Valley’s subsidiaries do not have any offices located in a foreign country, and they have no foreign assets, liabilities, or related income and expense.

Statistical Disclosure

The following section contains certain financial disclosures relating to Ohio Valley as required under the SEC’s Industry Guide 3, “Statistical Disclosure by Bank Holding Companies,” or a specific reference as to the location of the required disclosures in Ohio Valley’s 2020 Annual Report to Shareholders, which are incorporated herein by reference.

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL

A. & B. The average balance sheet information and the related analysis of net interest earnings for the years ended December 31, 2020, 2019 and 2018 are incorporated herein by reference to the information appearing under the caption “Table I – Consolidated Average Balance Sheet & Analysis of Net Interest Income,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.

Tables setting forth the effect of volume and rate changes on interest income and expense for the years ended December 31, 2020 and 2019 are incorporated herein by reference to the information appearing under the caption “Table II - Rate Volume Analysis of Changes in Interest Income & Expense,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.

II. INVESTMENT PORTFOLIO

A.	Types of Securities - Total securities on the balance sheet were comprised of the following classifications at December 31:
(dollars in thousands)	2020		2019		2018
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Securities Available for Sale
U.S. Government sponsored entity securities	$	18,153	$	16,736	$	16,630
Agency mortgage-backed securities, residential		94,169		88,582		85,534
Total securities available for sale	$	112,322	$	105,318	$	102,164
Securities Held to Maturity
Obligations of states of the U.S. and
political subdivisions	$	10,018	$	12,031	$	15,813
Agency mortgage-backed securities, residential		2		2		3
Total securities held to maturity	$	10,020	$	12,033	$	15,816
B.	Information required by this item is incorporated herein by reference to the information appearing under the caption “Table III - Securities,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”<br> located in Ohio Valley’s 2020 Annual Report to Shareholders.
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C.	Excluding obligations of the United States Government and its agencies, no concentration of securities exists of any issuer that is greater than 10% of shareholders’ equity of Ohio Valley.
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III. LOAN PORTFOLIO

A.	Types of Loans - Total loans on the balance sheet were comprised of the following classifications at December 31:
(dollars in thousands)	2020		2019		2018		2017		2016
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Residential real estate	$	305,478	$	310,253	$	304,079	$	309,163	$	286,022
Commercial real estate		253,449		222,136		216,360		213,446		214,007
Commercial and industrial		157,692		100,023		113,243		107,089		100,589
Consumer		132,045		140,362		143,370		139,621		134,283
	$	848,664	$	772,774	$	777,052	$	769,319	$	734,901
B.	Maturities and Sensitivities of Loans to Changes in Interest Rates - Information required by this item is incorporated herein by reference to the information appearing under the caption “Table VI - Maturity and Repricing Data of Loans,”<br> within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.
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C.	1.	Risk Elements - Gross interest income that would have been recorded on loans that were classified as nonaccrual or troubled debt restructurings if the loans had been in<br> accordance with their original terms is estimated to be $781,000, $1,268,000 and $1,173,000 for the fiscal years ended December 31, 2020, 2019 and 2018, respectively. The amount of interest income that was included in net income recorded<br> on such loans was $502,000, $987,000 and $908,000 for the fiscal years ended December 31, 2020, 2019 and 2018, respectively. Additional information required by this item is incorporated herein by reference to the information appearing under<br> the caption “Table V - Summary of Nonperforming, Past Due and Restructured Loans,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.
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2.	Potential Problem Loans - At December 31, 2020 and 2019, there were no loans that are not already included in “Table V - Summary of Nonperforming, Past Due and Restructured Loans” within “Management’s Discussion and Analysis of Financial<br> Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders, for which management has some doubt as to the borrower’s ability to comply with the present repayment terms. These loans and their loss<br> exposure have been considered in management’s analysis of the adequacy of the allowance for loan losses.
3.	Foreign Outstandings - There were no foreign outstandings at December 31, 2020, 2019 or 2018.
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4.	Loan Concentrations - As of December 31, 2020 and 2019, there were no concentrations of loans greater than 10% of total loans which are not otherwise disclosed as a category of loans pursuant to Item III.A. above. Also refer to the<br> Consolidated Financial Statements regarding concentrations of credit risk found within “Note A-Summary of Significant Accounting Policies” of the notes to the Company’s consolidated financial statements for the fiscal year ended December 31,<br> 2020, located in Ohio Valley’s 2020 Annual Report to Shareholders which is incorporated herein by reference.
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D.	Other Interest-Bearing Assets - As of December 31, 2020 and 2019, there were no other interest-bearing assets that would be required to be disclosed under Item III.C. if such<br> assets were loans
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IV. SUMMARY OF LOAN LOSS EXPERIENCE

A.	The following schedule presents an analysis of the allowance for loan losses for the fiscal years ended December 31:
(dollars in thousands)	2020			2019			2018			2017			2016
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Balance, beginning of year	$	6,272		$	6,728		$	7,499		$	7,699		$	6,648
Loans charged off:
Residential real estate		340			1,060			874			745			384
Commercial real estate		559			602			4			1,067			63
Commercial and industrial		185			1,513			208			627			586
Consumer		1,949			1,917			2,514			1,642			2,170
Total loans charged off		3,033			5,092			3,600			4,081			3,203
Recoveries of loans:
Residential real estate		157			629			215			260			299
Commercial real estate		116			2,089			523			362			132
Commercial and industrial		71			90			327			86			16
Consumer		597			828			725			609			981
Total recoveries of loans		941			3,636			1,790			1,317			1,428
Net loan charge-offs		(2,092	)		(1,456	)		(1,810	)		(2,764	)		(1,775	)
Provision charged to operations		2,980			1,000			1,039			2,564			2,826
Balance, end of year	$	7,160		$	6,272		$	6,728		$	7,499		$	7,699
Ratio of net charge-offs to average loans outstanding		.26	%		.19	%		.23	%		.37	%		.28	%
Ratio of allowance for loan losses to
non-performing assets		102.64	%		59.29	%		66.13	%		62.39	%		67.43	%

Discussion of factors that influenced management in determining the amount of additions charged to provision expense is incorporated herein by reference to the information appearing under the captions “Provision Expense” and “Allowance for Loan Losses” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.

B.	Allocation of the Allowance for Loan Losses - Information required by this item is incorporated herein by reference to the information appearing under the caption “Table IV - Allocation of the Allowance for Loan Losses,” within<br> “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.

V. DEPOSITS

A.	Deposit Summary - Information required by this item is incorporated herein by reference to the information appearing under the caption “Table I - Consolidated Average Balance Sheet & Analysis of Net Interest Income,” within<br> “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.
C.&E.	Foreign Deposits - There were no foreign deposits outstanding at December 31, 2020, 2019, or 2018.
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D.	Schedule of Maturities - The following table provides a summary of total time deposits of $100,000 or greater by remaining maturities for the fiscal year ended December 31, 2020 and 2019:
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December 31, 2020			Over		Over
---	---	---	---	---	---	---	---	---
(dollars in thousands)	3 months		3 through		6 through		Over
	or less		6 months		12 months		12 months
Total time deposits of $100,000 or greater	$	25,514	$	27,267	$	32,218	$	44,264
December 31, 2019			Over		Over
---	---	---	---	---	---	---	---	---
(dollars in thousands)	3 months		3 through		6 through		Over
	or less		6 months		12 months		12 months
Total time deposits of $100,000 or greater	$	19,207	$	14,556	$	33,942	$	56,663

VI. RETURN ON EQUITY AND ASSETS

Information required by this section is incorporated herein by reference to the information appearing under the caption “Table IX - Key Ratios” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.

VII. SHORT-TERM BORROWINGS

During each of the last three fiscal years, the Company’s average amount of short-term borrowings was less than 30% of shareholders’ equity at the end of the period.

ITEM 1A – RISK FACTORS

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this report and other publicly available documents incorporated herein by reference constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as “believes,” “anticipates,” “expects,” “intends,” “plan,” “goal,” “seek,” “project,” “estimate,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, particularly with regard to developments related to the COVID-19 pandemic, and which could cause actual results to differ materially from those expressed in such forward looking statements. These factors include, but are not limited to: the effects of the COVID-19 pandemic on our business, operations, customers and capital position; higher default rates on loans made to our customers related to COVID-19 and its impact on our customers’ operations and financial condition; the impact of COVID-19 on local, national and global economic conditions; unexpected changes in interest rates or disruptions in the mortgage market related to COVID-19 or responses to the health crisis; the effects of various governmental responses to the COVID-19 pandemic; changes in political, economic or other factors, such as inflation rates, recessionary or expansive trends, taxes, the effects of implementation of legislation and the continuing economic uncertainty in various parts of the world; competitive pressures; fluctuations in interest rates; the level of defaults and prepayment on loans made by the Company; unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes.

Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those factors identified below. There is also the risk that Ohio Valley’s management or Board of Directors incorrectly analyzes these risks and forces, or that the strategies Ohio Valley develops to address them are unsuccessful.

Forward-looking statements speak only as of the date on which they are made. Readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any intention to republish revised or updated forward looking statements, whether as a result of new information, unanticipated future events or otherwise. All subsequent written and oral forward-looking statements attributable to Ohio Valley or any person acting on our behalf are qualified in their entirety by the following cautionary statements.

The following are certain risks that management believes are specific to our business. This should not be viewed as an all-inclusive list of risks or presenting the risk factors listed in any particular order.

Risks Related to Economic, Political and Market Conditions

Economic, political and market risks could adversely affect our earnings and capital through declines in loan demand, quality of investment securities, our borrowers’ ability to repay loans, the value of the collateral securing our loans, and deposits.

Our success depends, to a certain extent, upon local and national economic and political conditions, as well as governmental fiscal and monetary policies. Inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, tariffs, a United States withdrawal from a significant renegotiation of trade agreements, trade wars, and other factors beyond our control may adversely affect our deposit levels and composition, the quality of our assets including investment securities available for purchase, and the demand for loans, which, in turn, may adversely affect our earnings and capital. Recent political developments have resulted in substantial changes in economic and political conditions for the United States and the remainder of the world. Because a significant amount of our loans are secured by real estate, additional decreases in real estate values likely would adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings and cash flows.

In addition, consistent with our community banking philosophy, substantially all of our loans are to individuals and businesses in Ohio and West Virginia. Therefore, our local and regional economies have a direct impact on our ability to generate deposits to support loan growth, the demand for loans, the ability of borrowers to repay loans, the value of collateral securing our loans (particularly loans secured by real estate), and our ability to collect, liquidate and restructure problem loans. Consequently, any decline in the economy of this market area could have a material adverse effect on our financial condition and results of operations. We are less able than larger financial institutions to spread risks of unfavorable local economic conditions across a large number of diversified economies.

Our earnings are significantly affected by the fiscal and monetary policies of the United States Government and its agencies, sometimes adversely.

The policies of the Federal Reserve Board impact us significantly. The Federal Reserve Board regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve Board policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve Board could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations.

Changes in interest rates could have a material adverse effect on our financial condition and results of operations.

Our earnings depend substantially on our interest rate spread, which is the difference between (i) the rates we earn on loans, securities and other earning assets and (ii) the interest rates we pay on deposits and other borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities (in particular, the Federal Reserve Board). While we have taken measures intended to manage the risks of operating in a changing interest rate environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk. As market interest rates rise, we will have competitive pressures to increase the rates we pay on deposits, which will result in a decrease of our net interest income and could have a material adverse effect on our financial condition and results of operations.

In addition to the effect of changes in interest rates on our interest rate spread, changes in interest rates may negatively affect the ability of our borrowers to repay their loans, particularly as interest rates have been rising and adjustable-rate debt becomes more expensive. Increased defaults on loans could have a material adverse effect on our financial condition, results of operations and cash flows.

A transition away from the London Interbank Offered Rate (“LIBOR”) as a reference rate for financial contracts could negatively affect our income and expenses and the value of various financial contracts.

LIBOR is used extensively in the U.S. and globally as a benchmark for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. LIBOR is set based on interest rate information reported by certain banks, which may stop reporting such information after 2021. In November 2020, the Federal Reserve Board issued a statement supporting the release of a proposal and supervisory statements designed to provide a clear end date for U.S. Dollar LIBOR (“USD LIBOR”), and the federal banking agencies issued a release encouraging banks to stop entering into USD LIBOR contracts by the end of 2021, noting that most legacy contracts will mature prior to the date LIBOR ceases to be issued. It is uncertain at this time the extent to which those entering into financial contracts will transition to any other particular benchmark. Other benchmarks may perform differently than LIBOR or other alternative benchmarks or have other consequences that cannot currently be anticipated. It is also uncertain what will happen with instruments that rely on LIBOR for future interest rate adjustments and which remain outstanding if LIBOR ceases to exist.

The Federal Reserve Board, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing USD LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities, otherwise known as the Secured Overnight Financing Rate ("SOFR"). SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. Whether or not SOFR attains traction as a LIBOR replacement tool remains in question, although transactions using SOFR have been completed, including by Fannie Mae. Both Fannie Mae and Freddie Mac ceased accepting adjustable rate mortgages tied to LIBOR and began accepting mortgages based on SOFR in 2020.

We have a limited number of loans, derivative contracts, borrowings and other financial instruments, and continue to enter into loans, derivatives contracts, borrowings and other financial instruments, with attributes that are directly or indirectly dependent on LIBOR. The transition from LIBOR could create costs and additional risk for us. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Further, our failure to adequately manage this transition process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, any market-wide transition away from LIBOR could have an adverse effect on our business, financial condition and results of operations.

Adverse changes in the financial markets may adversely impact our results of operations.

The capital and credit markets have been experiencing unprecedented levels of volatility since 2008. While we generally invest in securities with limited credit risk, certain investment securities we hold possess higher credit risk since they represent beneficial interests in structured investments collateralized by residential mortgages. Regardless of the level of credit risk, all investment securities are subject to changes in market value due to changing interest rates and implied credit spreads.

Structured investments have at times been subject to significant market volatility due to the uncertainty of credit ratings, deterioration in credit losses occurring within certain types of residential mortgages, changes in prepayments of the underlying collateral and the lack of transparency related to the investment structures and the collateral underlying the structured investment vehicles.

A default by another larger financial institution could adversely affect financial markets generally.

Many financial institutions and their related operations are closely intertwined, and the soundness of such financial institutions may, to some degree, be interdependent. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This “systemic risk” may adversely affect our business.

Risks Related to Our Business

The economic impact of COVID-19 or any other pandemic could adversely affect our business, financial condition, liquidity, cash flows, and results of operations.

COVID-19 has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal bank regulatory agencies have encouraged financial institutions to prudently work with affected borrowers, and new legislation has provided relief from reporting loan classifications due to modifications related to COVID-19.

Given the ongoing and dynamic nature of COVID-19, it is difficult to predict the full impact of the pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated and when and how the economy may be reopened. As of December 31, 2020, the Bank holds and services PPP loans. These PPP loans are subject to the provisions of the CARES Act and to complex and evolving rules and guidance issued by the SBA and other government agencies. We expect that the great majority of our PPP borrowers will seek full or partial forgiveness of their loan obligations. The Bank has credit risk on the PPP loans if the SBA determines that there is a deficiency in the manner in which the Bank originates, funds or services loans, including any issue with the eligibility of a borrower to receive a PPP loan. We could face additional risks in our administrative capabilities to service our PPP loans and risk with respect to the determination of loan forgiveness. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced the PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency.

The spread of COVID-19 has also caused us to modify our business practices, including employee work locations, and cancellation of physical participation in meetings, events and conferences. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to such employees to be more limited or less reliable. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk from phishing, malware, and other cybersecurity attacks, all of which could expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any impacted customers.

COVID-19 or a new pandemic could subject us to any of the following risks, any of which could, individually or in the aggregate, have a material adverse effect on our business, financial condition, liquidity, and results of operations:

•	demand for our products and services may decline, making it difficult to grow assets and income;
•	if high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
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•	collateral for loans, especially real estate, may decline in value, which could cause credit losses to increase;
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•	our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
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•	the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and
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•	as the result of the decline in the Federal Reserve’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing<br> liabilities, reducing our net interest margin and spread and reducing net income.
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Even after the COVID-19 pandemic subsides, the U.S. economy will likely require time to recover, the length of which is unknown and during which the United States may experience a recession. Our business could be materially and adversely affected by such recession. To the extent the effects of COVID-19 adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this section.

We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively.

In our market area, we encounter significant competition from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. Many of our competitors have substantially greater resources and lending limits than we do and may offer services that we do not or cannot provide. Technology and other changes are allowing parties to complete financial transactions that historically have involved banks at one or both ends of the transaction. For example, consumers can now pay bills and transfer funds directly without banks. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits. In addition, technological advancements allow parties to better serve customers, increase efficiency, and reduce costs. Our ability to maintain our history of strong financial performance and return on investment to shareholders will depend, in part, on our ability to use technology to deliver products and services that provide convenience to customers and to create additional efficiencies in our operations.

Our small to medium-sized business target market may have fewer financial resources to weather a downturn in the economy.

We target our business development and marketing strategy largely to serve the banking and financial services needs of small to medium-sized businesses. These small to medium-sized businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger companies. If general economic conditions negatively impact our Ohio and West Virginia markets or the other geographic markets in which we operate, our results of operations and financial condition may be negatively affected.

Our business strategy includes growth plans. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing a profitable growth strategy. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development. We cannot assure you that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy. Also, if we grow more slowly than anticipated, our operating results could be materially adversely affected.

Our ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas, our ability to raise sufficient capital and our ability to manage our growth. While we believe we have the management resources and internal systems in place to successfully manage our future growth, there can be no assurance growth opportunities will be available or growth will be successfully managed.

We may acquire other financial institutions or parts of institutions in the future and may open new branches. We also may consider and enter into new lines of business or offer new products or services. Expansions of our business involve a number of expenses and risks, including:

•	the time and costs associated with identifying and evaluating potential acquisitions or new products or services;
•	the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to the target institutions;
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•	the time and costs of evaluating new markets, hiring local management and opening new offices, and the delay between commencing these activities and the generation of profits from the<br> expansion;
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•	our ability to finance an acquisition or other expansion and the possible dilution to our existing shareholders;
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•	the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;
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•	entry into unfamiliar markets;
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•	the possible failure of the introduction of new products and services into our existing business;
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•	the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
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•	the risk of loss of key employees and customers.
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We may incur substantial costs to expand, and we can give no assurance that such expansion will result in the levels of profits we expect. Neither can we assure that integration efforts for any future acquisitions will be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders. We may also lose customers as we close one or more branches as part of a plan to expand into other areas or become more productive from other branches.

We may not be able to adapt to technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers while reducing costs. Our future success depends, in part, upon our ability to address customer needs by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect our growth, revenue and profit.

We are at risk of increased losses from fraud.

Criminals are committing fraud at an increasing rate and are using more sophisticated techniques. In some cases, these individuals are part of larger criminal rings, which allow them to be more effective. Such fraudulent activity has taken many forms, ranging from debit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, or impersonation of clients through the use of falsified or stolen credentials. Additionally, an individual or business entity may properly identify itself, yet seek to establish a business relationship for the purpose of perpetrating fraud. An emerging type of fraud even involves the creation of synthetic identification in which fraudsters "create" individuals for the purpose of perpetrating fraud. Further, in addition to fraud committed directly against us, we may suffer losses as a result of fraudulent activity committed against third parties. Increased deployment of technologies, such as chip card technology, defray and reduce certain aspects of fraud; however, criminals are turning to other sources to steal personally identifiable information, such as unaffiliated healthcare providers and government entities, in order to impersonate the consumer and thereby commit fraud.

Periodic regulatory reviews may affect our operations and financial condition.

We are subject to periodic reviews from state and federal regulators, which may impact our operations and our financial condition. As part of the regulatory review, the loan portfolio and the allowance for loan losses are evaluated. As a result, the incurred loss identified on loans or the assigned loan rating could change and may require us to increase our provision for loan losses or loan charge-offs. In addition, any downgrade in loan ratings could impact our level of impaired loans or classified assets. Any increase in our provision for loan losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on our financial condition and results of operations. Findings of deficiencies in compliance with regulations could result in restrictions on our activities or even a loss in our financial holding company status.

Our exposure to credit risk could adversely affect our earnings and financial condition.

Making loans carries inherent risks, including interest rate changes over the time period in which loans may be repaid, risks resulting from changes in the economy, risks that we will have inaccurate or incomplete information about borrowers, risks that borrowers will become unable to repay loans; and, in the case of loans secured by collateral, risks resulting from uncertainties about the future value of the collateral.

Commercial and commercial real estate loans comprise a significant portion of our loan portfolio. Commercial loans generally are viewed as having a higher credit risk than residential real estate or consumer loans because they usually involve larger loan balances to a single borrower and are more susceptible to a risk of default during an economic downturn. Since our loan portfolio contains a significant number of commercial and commercial real estate loans, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans, and ultimately could have a material adverse effect on our earnings and financial condition. We may also have concentrated credit exposure to a particular industry, resulting in a risk of a material adverse effect on our earnings or financial condition if there is an event adversely affecting that industry.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and counterparties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with United States generally accepted accounting principles (“GAAP”) and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition, results of operations and cash flows could be negatively impacted to the extent that we rely on financial statements that do not comply with GAAP or on financial statements and other financial information that are materially misleading.

We may be required to repurchase loans we have sold or indemnify loan purchasers under the terms of the sale agreements, which could adversely affect our liquidity, results of operations and financial condition.

When the Bank sells a mortgage loan, it agrees to repurchase or substitute a mortgage loan if it is later found to have breached any representation or warranty the Bank made about the loan or if the borrower is later found to have committed fraud in connection with the origination of the loan. While we have underwriting policies and procedures designed to avoid breaches of representations and warranties as well as borrower fraud, we cannot assurance that no breach or fraud will ever occur. Required repurchases, substitutions or indemnifications could have an adverse effect on our liquidity, results of operations and financial condition.

If our actual loan losses exceed our allowance for loan losses, our net income will decrease.

Our loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which could have a material adverse effect on our operating results. In accordance with GAAP, we maintain an allowance for loan losses to provide for loan defaults and non-performance, which when combined, we refer to as the allowance for loan losses. Our allowance for loan losses may not be adequate to cover actual credit losses, and future provisions for credit losses could have a material adverse effect on our operating results. Our allowance for loan losses is based upon a number of relevant factors, including, but not limited to, trends in the level of nonperforming assets and classified loans, current economic conditions in the primary lending area, prior experience, possible losses arising from specific problem loans, and our evaluation of the risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. Moreover, the Financial Accounting Standards Board (“FASB”) has changed its requirements for establishing the allowance, which will be effective for us in the first quarter of 2023. We cannot assure you that we will not further increase the allowance for loan losses or that regulators will not require us to increase this allowance. Either of these occurrences could have a material adverse effect on our financial condition and results of operations.

We may lose business due to declining use by consumers of banks to complete financial transactions or increased depositing of funds electronically with banks outside of our market area, which could negatively affect our net financial condition and results of operations.

Technology and other changes allow parties to complete financial transactions without banks. For example, consumers can pay bills and transfer funds directly without banks. Consumers can also shop for higher deposit interest rates at banks across the country, which may offer higher rates because they have few or no physical branches and open deposit accounts electronically. This process could result in the loss of fee income, as well as the loss of client deposits and the income generated from those deposits, in addition to increasing our funding costs.

Failures of, or material breaches in security of, our systems or those of third-party service providers may have a material adverse effect on our business.

We collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both us and third-party service providers. Our dependence upon automated systems to record and process the Bank’s transactions poses the risk that technical system flaws, employee errors, tampering or manipulation of those systems, or attacks by third parties will result in losses and may be difficult to detect. Our inability to use these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. In recent years, some banks have experienced denial of service attacks in which individuals or organizations flood the bank's website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions. We could also be adversely affected if one of our employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. We are further exposed to the risk that third-party service providers may be unable to fulfill their contractual obligations or will be affected by the same risks as the Bank has. These disruptions may interfere with service to the Bank’s customers, cause additional regulatory scrutiny and result in a financial loss or liability. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.

Employees could engage in fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information. We may not be able to prevent employee errors or misconduct, and the precautions we take to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject us to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.

In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to our reputation.

Management cannot be certain that the security controls we have adopted will prevent unauthorized access to our computer systems or those of our third-party service providers, whom we require to maintain similar controls. A security breach of the computer systems and loss of confidential information, such as customer account numbers or personal information, could result in a loss of customers’ confidence and, thus, loss of business. In addition, unauthorized access to or use of sensitive data could subject us to litigation and liability and costs to prevent further such occurrences.

Further, we may be affected by data breaches at retailers and other third parties who participate in data interchanges with us and our customers that involve the theft of customer credit and debit card data, which may include the theft of our debit card PIN numbers and commercial card information used to make purchases at such retailers and other third parties. Such data breaches could result in us incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on our results of operations.

Our assets at risk for cyber-attacks include financial assets and non-public information belonging to customers. We use several third-party vendors who have access to our assets via electronic media. Certain cyber security risks arise due to this access, including cyber espionage, blackmail, ransom, and theft. As cyber and other data security threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any security vulnerabilities.

Our ability to pay cash dividends is limited, and we may be unable to pay cash dividends in the future even if we would like to do so.

We are dependent primarily upon the earnings of our operating subsidiaries for funds to pay dividends on our common stock. The payment of dividends by us is also subject to certain regulatory restrictions. As a result, any payment of dividends in the future will be dependent, in large part, on our ability to satisfy these regulatory restrictions and our subsidiaries’ earnings, capital requirements, financial condition and other factors. Although our financial earnings and financial condition have allowed us to declare and pay periodic cash dividends to our shareholders, there can be no assurance that our dividend policy or the size of dividend distribution will continue in the future, even if we are able to pay dividends. Our failure to pay dividends on our common shares could have a material adverse effect on the market price of our common shares.

The loss of key members of our senior management team could adversely affect our business.

We believe that our success depends largely on the efforts and abilities of our senior management. Their experience and industry contacts significantly benefit us. In addition, our success depends in part upon senior management’s ability to implement our business strategy. The competition for qualified personnel in the financial services industry is intense, and the loss of services of any of our senior executive officers or an inability to continue to attract, retain and motivate key personnel could adversely affect our business. We cannot assure you that we will be able to retain our existing key personnel or attract additional qualified personnel.

Loss of key employees may disrupt relationships with certain customers.

Our business is primarily relationship-driven in that many of our key employees have extensive customer relationships. Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor. While we believe we have strong relationships with our key producers, we cannot guarantee that all of our key personnel will remain with our organization. Loss of such key personnel, should they enter into an employment relationship with one of our competitors, could result in the loss of some of our customers.

If we foreclose on collateral property and own the underlying real estate, we may be subject to the increased costs associated with the ownership of real property, resulting in reduced revenue.

We may have to foreclose on collateral property to protect our investment and may thereafter own and operate such property, in which case we will be exposed to the risks inherent in the ownership of real estate. The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to: (i) general or local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the mortgaged properties; (vi) supply of and demand for rental units or properties; (vii) ability to obtain and maintain adequate occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations and fiscal policies; and (x) acts of God. Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate. Therefore, the cost of operating a real property may exceed the rental income earned from such property, and we may have to advance funds in order to protect our investment, or we may be required to dispose of the real property at a loss. We may also acquire properties with hazardious substances that must be removed or remediated, the costs of which could be substantial, and we may not be able to recover such costs from the responsible parties. The foregoing expenditures and costs could adversely affect our ability to generate revenues, resulting in reduced levels of profitability.

The failure of our common shares to be included in the Russell 3000 Index could result in the market for our common shares to become limited and volatile and the price at which you can sell your shares to decrease.

Your ability to sell or purchase our common shares depends upon the existence of an active trading market for our common shares. Additionally, a fair valuation of the purchase or sales price of our common shares also depends upon an active trading market, and thus the price you receive for a thinly-traded stock may not reflect its true value. A limited trading market for common shares may cause fluctuations in the market value of those common shares to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market.

Although our common shares are quoted on the NASDAQ Global Market, the volume of trades on any given day has historically been limited. As a result, shareholders might not have been able to sell or purchase our common shares at the volume, price or time desired. On June 26, 2017, our common shares were added to the Russell 3000® Index. The addition of our common shares to the Russell 3000® Index increased the volume of trading in our shares as well as the price at which our shares trade. There can be no assurance that our common shares will remain in that index. If our common shares are removed from the Russell 3000® Index, the volume of trading in our shares may decrease materially as well as the prices at which our shares trade.

Risks Related to Legal, Regulatory and Accounting Changes

New laws and increased regulatory oversight may significantly affect our business, financial condition and results of operations.

The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, borrowers, the DIF and the banking system as a whole, and not to benefit our shareholders. Regulations affecting banks and financial services businesses are undergoing continuous changes, and management cannot predict the effect of these changes. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us and our ability to increase the value of our business, possibly limiting the services we provide, increasing the potential for competition from non-banks, or requiring us to change the way we operate.

Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets held by an institution, the adequacy of an institution’s allowance for loan losses and the ability to complete acquisitions. Additionally, actions by regulatory agencies against us could cause us to devote significant time and resources to defending our business and may lead to penalties that materially affect us and our shareholders. Even the reduction of regulatory restrictions could have an adverse effect on us and our shareholders if such lessening of restrictions increases competition within our industry or market area.

In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance market could negatively affect our ability to sell loans.

Although it is impossible for us to predict at this time what changes in laws and regulations will be implemented and the effect they will have on us and the rest of our industry, it is possible that our revenue could decrease, our interest expense could increase and deposit insurance premiums could change, and steps may need to be taken to increase qualifying capital. Our operating and compliance costs could increase and could adversely affect our financial condition and results of operations.

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

Increased bank failures for several years commencing in 2008 greatly increased resolution costs of the FDIC and depleted the DIF. In order to maintain a strong funding position and restore reserve ratios of the DIF, the FDIC took a number of actions, including increasing assessment rates of insured institutions, requiring riskier institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels, changing the assessment base and requiring a prepayment of assessments for over three years.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional financial institution failures, we may be required to pay even higher FDIC premiums. Increases in FDIC insurance premiums may materially adversely affect our results of operations and our ability to continue to pay dividends on our common shares at the current rate or at all. The FDIC has recently adopted rules revising its assessments in a manner benefitting banks with assets totaling less than $10 billion. There can be no assurance, though, that assessments will not be changed in the future.

Changes in accounting standards, policies, estimates or procedures could impact our reported financial condition or results of operations.

Entities that set generally applicable accounting standards, such as the FASB, the Securities and Exchange Commission, and other regulatory boards, periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be difficult to predict and can materially affect how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, which would result in the restatement of our financial statements for prior periods.

In June 2016, FASB issued a new accounting standard for recognizing current expected credit losses, commonly referred to as CECL. CECL will result in earlier recognition of credit losses and requires consideration of not only past and current events but also reasonable and supportable forecasts that affect collectability. In October 2019, FASB announced it would delay the effective date of CECL for smaller companies, such as Ohio Valley, until fiscal years beginning after December 15, 2022. Upon adoption of CECL, credit loss allowances may increase, which will decrease retained earnings and regulatory capital. The federal banking regulators have adopted a regulation that will allow banks to phase in the day-one impact of CECL on regulatory capital over three years. CECL implementation poses operational risk, including the failure to properly transition internal processes or systems, which could lead to call report errors, financial misstatements, or operational losses.

Management’s accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods in order to ensure that they comply with GAAP and reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances yet might result in reporting materially different amounts than would have been reported under a different alternative.

Management has identified several accounting policies that are considered significant (one as being “critical”) to the presentation of our financial condition and results of operations because they require management to make particularly subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Because of the inherent uncertainty of estimates about these matters, no assurance can be given that the application of alternative policies or methods might not result in our reporting materially different amounts.

ITEM 1B – UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2 - PROPERTIES

The principal executive offices of Ohio Valley and the Bank are located at 420 Third Avenue, Gallipolis, Ohio. The Bank owns twelve financial service centers located in Gallipolis and Rio Grande (Gallia Co.), Jackson, Oak Hill and Wellston (Jackson Co.), and Waverly (Pike Co.) in Ohio; and Point Pleasant and Mason (Mason Co.), and Milton and Barboursville (Cabell Co.) in West Virginia. The Bank leases three additional financial service centers located in Gallipolis (Gallia Co.) and Athens (Athens Co.) in Ohio. The Bank also owns and operates thirty-five ATMs, including twenty off-site ATMs. Furthermore, the Bank owns four facilities in Gallipolis (Gallia Co.), Ohio, which are used for additional office space. The Bank also owns a facility in Gallipolis (Gallia Co.) in Ohio which is leased to a third party.

Loan Central conducts its consumer finance operations through six offices located in Gallipolis (Gallia Co.), Jackson (Jackson Co.), Waverly (Pike Co.), South Point (Lawrence Co.), Wheelersburg (Scioto Co.) and Chillicothe (Ross Co.), all in Ohio. All of these facilities are leased by Loan Central, except for the Gallipolis (Gallia Co.), Jackson (Jackson Co.) and Wheelersburg (Scioto Co.) facilities. Loan Central leases a portion of its Gallipolis (Gallia Co.) and Wheelersburg (Scioto Co.) facilities to third parties.

Management considers all of these properties to be satisfactory for the Company’s current operations. The Bank and Loan Centrals’ leased facilities are all subject to commercially standard leasing arrangements.

Information concerning the value of the Company’s owned and leased real property and a summary of future lease payments is contained in “Note D – Premises and Equipment” and “Note E – Leases” of the notes to the Company’s consoldiated financial statements for the fiscal year ended December 31, 2020, located in Ohio Valley’s 2020 Annual Report to Shareholders.

ITEM 3 – LEGAL PROCEEDINGS

From time to time, the Company may be involved in various claims and legal actions in the ordinary course of business. The Company is not currently involved in any material legal proceedings outside the ordinary course of the Company’s business.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Ohio Valley’s common shares are traded on The NASDAQ Stock Market under the symbol “OVBC,” and were held of record by approximately 2,165 shareholders as of February 28, 2021. The information required under this Item 5 by Item 201(d) of SEC Regulation S-K is incorporated herein by reference to the information presented under “Note J - Subordinated Debentures and Trust Preferred Securities” and “Note P - Regulatory Matters” of the notes to the Company’s consolidated financial statements for the fiscal year ended December 31, 2020 located in Ohio Valley’s 2020 Annual Report to Shareholders.

Ohio Valley did not sell any unregistered equity securities during the three months ended December 31, 2020.

Ohio Valley did not purchase any of its shares during the three months ended December 31, 2020.

ITEM 6 - SELECTED FINANCIAL DATA

The information required under this Item 6 by Item 301 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption “Selected Financial Data” located in Ohio Valley’s 2020 Annual Report to Shareholders.

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required under this Item 7 by Item 303 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2020 Annual Report to Shareholders.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Ohio Valley’s consolidated financial statements and related notes are listed below and incorporated herein by reference to Ohio Valley’s 2020 Annual Report to Shareholders. The supplementary data located under the captions “Consolidated Quarterly Financial Information (unaudited)” and the “Report of Independent Registered Public Accounting Firm” located in Ohio Valley’s 2020 Annual Report to Shareholders is also incorporated herein by reference.

Consolidated Statements of Condition as of December 31, 2020 and 2019

Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A – CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

With the participation of the Chief Executive Officer (the principal executive officer) and the Senior Vice President and Chief Financial Officer (the principal financial officer) of Ohio Valley, Ohio Valley's management has evaluated the effectiveness of Ohio Valley's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that Ohio Valley’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of December 31, 2020 in ensuring that the information required to be disclosed by Ohio Valley in the reports that Ohio Valley files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and were operating in an effective manner to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

“Management’s Report on Internal Control Over Financial Reporting” located in Ohio Valley’s 2020 Annual Report to Shareholders is incorporated into this Item 9A by reference.

Report of Registered Public Accounting Firm

The “Report of Independent Registered Public Accounting Firm” located in Ohio Valley’s 2020 Annual Report to Shareholders is incorporated into this Item 9A by reference.

Changes In Internal Control Over Financial Reporting

As described in our 2019 Form 10-K, management concluded that Ohio Valley did not maintain effective internal control over financial reporting as of December 31, 2019, due to the ineffectiveness of the Company’s control over appropriate monitoring of loans through the subsequent events period, including not timely evaluating information received after the fiscal year end that affected the appropriateness of loan grades and impairment classification used in the allowance for loan losses estimate. A material weakness is a deficiency in internal control over financial reporting such that there is a reasonable possibility that a material misstatement would not be prevented or detected in a timely manner. With regard to the material weakness, our remediation efforts began during the quarter ended March 31, 2020. We changed how certain controls are designed, performed and documented. Our credit administration department, in conjunction with an expanded group of the management team, have heightened the monitoring of troubled credits during the subsequent event period up and until the report filing date. This included training around timely identifying and communicating subsequent events and increasing the management staff involved with monitoring the control around subsequent events that may impact the assessment of loan grades or impairment valuations. During the fourth quarter of 2020, management successfully completed testing necessary to conclude the material weakness had been remediated.

There were no changes in Ohio Valley's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during Ohio Valley's fiscal quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, Ohio Valley's internal control over financial reporting.

ITEM 9B – OTHER INFORMATION

None.

PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required under this Item 10 by Items 401, 405, and 407(c)(3), (d)(4) and (d)(5) of SEC Regulation S-K is incorporated herein by reference to the information presented in Ohio Valley’s definitive proxy statement relating to the annual meeting of shareholders of Ohio Valley to be held on May 19, 2021 (the “2021 Proxy Statement”), under the captions “Proxy Item 1: Election of Directors,” and “Compensation of Executive Officers and Directors” of the 2021 Proxy Statement.

The Board of Directors of Ohio Valley has adopted a Code of Ethics covering the directors, officers and employees of Ohio Valley and its affiliates, including, without limitation, the principal executive officer, the principal financial officer and the principal accounting officer of Ohio Valley. The Code of Ethics is posted on Ohio Valley’s website at www.ovbc.com. Amendments to the Code of Ethics and waivers of the provisions of the Code of Ethics will also be posted on Ohio Valley’s website. Interested persons may obtain copies of the Code of Ethics without charge by writing to Ohio Valley Banc Corp., Attention: Tom R. Shepherd, Secretary, 420 Third Avenue, Gallipolis, Ohio 45631.

ITEM 11 - EXECUTIVE COMPENSATION

The information required under this Item 11 by Items 402 and 407(e)(4) and (e)(5) of SEC Regulation S-K is incorporated herein by reference to the information presented under the captions “Compensation of Executive Officers and Directors” and “Proxy item 1: Election of Directors – Committees of the Board – Compensation and Management Succession Committee” of the 2021 Proxy Statement.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required under this Item 12 by Item 403 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption “Ownership of Certain Beneficial Owners and Management” of the 2021 Proxy Statement.

Ohio Valley does not maintain any equity compensation plans requiring disclosure pursuant to Item 201(d) of SEC Regulation S-K.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this Item 13 by Item 404 and Item 407(a) of SEC Regulation S-K is incorporated herein by reference to the information presented under the captions “Certain Relationships and Related Transactions” and “Proxy Item 1: Election of Directors” of the 2021 Proxy Statement.

ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this Item 14 by Item 9(e) of Schedule 14A is incorporated herein by reference to the information presented under the captions “Pre-Approval of Services Performed by Independent Registered Public Accounting Firm” and “Services Rendered by Independent Registered Public Accounting Firm” of the 2021 Proxy Statement.

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. (1) Financial Statements

The following consolidated financial statements of Ohio Valley appear in the 2020 Annual Report to Shareholders, Exhibit 13, and are specifically incorporated herein by reference under Item 8 of this Form 10-K:

Consolidated Statements of Condition as of December 31, 2020 and 2019

Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

(2) Financial Statement Schedules

Financial statement schedules are omitted as they are not required or are not applicable, or the required information is included in the financial statements.

(3) Exhibits

Reference is made to the Exhibit Index beginning on page 37 of this Form 10-K.

ITEM 16 – FORM 10-K SUMMARY

None.

EXHIBIT INDEX

The following exhibits are included in this Form 10-K or are incorporated by reference as noted in the following table:

Exhibit Number	Exhibit Description
3.1	Amended Articles of Incorporation of Ohio Valley (reflects amendments through April 7, 1999) \[for SEC reporting compliance only - - not filed with the<br> Ohio Secretary of State\]: Incorporated herein by reference to Exhibit 3(a) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2007 (File No. 000-20914).
3.2	Code of Regulations of Ohio Valley: Incorporated herein by reference to Exhibit 3(b) to Ohio Valley’s Quarterly Report on Form 10-Q for the<br> quarter ended June 30, 2010 (File No. 000-20914).
4.1	Agreement to<br> furnish instruments and agreements defining rights of holders of long-term debt: Filed herewith.
4.2	Description of Registered Securities: Incorporated herein by reference to Exhibit 4.2 to Ohio Valley’s Annual Report on Form 10-K for fiscal<br> year ended December 31, 2019 (File No. 000-20914).
10.1*	The Ohio Valley Bank Company Executive Group Life Split Dollar Plan Agreement, dated December 31, 2011, between Thomas E. Wiseman and The Ohio<br> Valley Bank Company: Incorporated herein by reference to Exhibit 10.1 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2015 (File No. 000-20914).
10.2*	Schedule A to<br> Exhibit 10.1 identifying other identical Executive Group Life Split Dollar Agreements between The Ohio Valley Bank Company and certain executive officers of Ohio Valley Banc Corp.: Filed herewith.
10.3(a)*	The Ohio<br> Valley Bank Company Third Amended and Restated Director Retirement Agreement, dated December 18, 2012, between Thomas E. Wiseman and The Ohio Valley Bank Company: Filed herewith.
10.3(b)*	Schedule A to<br> Exhibit 10.3(a) identifying other identical Third Amended and Restated Director Retirement Agreements between The Ohio Valley Bank Company and directors of Ohio Valley Banc Corp.: Filed herewith.
10.4*	The Ohio Valley Bank Company Salary Continuation Agreement, dated January 26, 2016, by and between Larry E. Miller and The Ohio Valley Bank<br> Company: Incorporated herein by reference to Exhibit 10.4 to Ohio Valley’s Current Report on Form 8-K filed on January 26, 2016 (File No. 000-20914).
10.4(a)*	Schedule A to<br> Exhibit 10.4 identifying other identical Salary Continuation Agreements between The Ohio Valley Bank Company and certain executive officers of Ohio Valley Banc Corp.: Filed herewith.

Exhibit Number	Exhibit Description
10.6(a)*	The Ohio Valley Bank Company Second Amended and Restated Director Deferred Fee Agreement, dated December 18, 2012, between Thomas E. Wiseman<br> and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.6(a) to Ohio Valley’s Quarterly Report on Form 10-Q for period ended September 30, 2015 (File No. 000-20914).
10.6(b)*	Schedule A to Exhibit 10.6(a) identifying other identical Second Amended and Restated Director Deferred Fee Agreements between The Ohio Valley<br> Bank Company and directors of Ohio Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.6(b) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2018 (File No. 000-20914).
10.7(a)*	The Ohio<br> Valley Bank Company Executive Deferred Compensation Agreement, dated December 18, 2012, between Thomas E. Wiseman and The Ohio Valley Bank Company: Filed herewith.
10.7(b)*	First Amendment to The Ohio Valley Bank Company Executive Deferred Compensation Agreement, dated January 26, 2016: Incorporated herein<br> by reference to Exhibit 10.2 to Ohio Valley’s Current Report on Form 8-K filed on January 26, 2016 (File No. 000-20914).
10.7(c)*	The Ohio Valley Bank Company Executive Deferred Compensation Agreement, dated January 26, 2016, between Larry E. Miller and The Ohio Valley<br> Bank Company: Incorporated herein by reference to Exhibit 10.1 to Ohio Valley’s Current Report on Form 8-K filed on January 26, 2016 (File No. 000-20914).
10.7(d)*	Schedule A to<br> Exhibit 10.7(a) identifying other identical Executive Deferred Compensation Agreements between The Ohio Valley Bank Company and executive officers of Ohio Valley Banc Corp.: Filed herewith.
10.7(e)*	Schedule A to<br> Exhibit 10.7(b) identifying the named executive officers of Ohio Valley Banc Corp. who executed with The Ohio Valley Bank Company the First Amendment to The Ohio Valley Bank Company Executive Deferred Compensation Agreement: Filed<br> herewith.
10.8*	Summary of<br> Compensation for Directors and Named Executive Officers of Ohio Valley Banc Corp.: Filed herewith.
10.9*	Summary of<br> Bonus Program of Ohio Valley Banc Corp.: Filed herewith.
10.10*	The Ohio Valley Bank Company Supplemental Executive Retirement Plan agreement, dated March 6, 2012, between Thomas E. Wiseman and The Ohio<br> Valley Bank Company; Incorporated herein by reference to Exhibit 10.1 to Ohio Valley’s Current Report on Form 8-K filed on March 9, 2012 (File No. 000-20914).

Exhibit Number	Exhibit Description
10.11*	The Ohio Valley Bank Company Fourth Amended and Restated Director Retirement Agreement, dated May 13, 2015, between Brent A. Saunders and The<br> Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.11 to Ohio Valley’s Quarterly Report on Form 10-Q for period ended September 30, 2015 (File No. 000-20914).
10.12*	Schedule A to<br> Exhibit 10.11 identifying other identical Fourth Amended and Restated Director Retirement Agreements between The Ohio Valley Bank Company and directors of Ohio Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.12 to Ohio<br> Valley’s Quarterly Report on Form 10-Q for period ended September 30, 2015 (File No. 000-20914).
10.13*	The Ohio Valley Bank Company Third Amended and Restated Director Deferred Fee Agreement, dated May 13, 2015, between Brent A. Saunders and The<br> Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.13 to Ohio Valley’s Quarterly Report on Form 10-Q for period ended September 30, 2015 (File No. 000-20914).
10.14*	Schedule A to Exhibit 10.13 identifying other identical Third Amended and Restated Director Deferred Fee Agreements between The Ohio Valley<br> Bank Company and directors of Ohio Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.14 to Ohio Valley’s Quarterly Report on Form 10-Q for period ended September 30, 2015 (File No. 000-20914).
10.15*	The Ohio Valley Bank Company Director Retirement Agreement, dated December 14, 2016, between Brent R. Eastman and The Ohio Valley Bank<br> Company: Incorporated herein by reference to Exhibit 10.15 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2016 (File No. 000-20914).
10.16*	The Ohio Valley Bank Company Director Deferred Fee Agreement, dated December 14, 2016, between Brent R. Eastman and The Ohio Valley Bank<br> Company: Incorporated herein by reference to Exhibit 10.16 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2016 (File No. 000-20914).
10.17*	2016 Determination of Director’s Fees Agreement for purposes of the Director Deferred Fee Agreements for Directors Thomas, Howe, Wiseman,<br> Barnitz and Saunders: Incorporated herein by reference to Exhibit 10.17 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2016 (File No. 000-20914).
10.19*	2016<br> Determination of Director’s Fees Agreement for purposes of the Director Retirement Agreement for Directors Thomas, Howe, and Wiseman: Filed herewith.

Exhibit Number	Exhibit Description
10.21*	2016 Determination of Director’s Fees Agreement for purposes of the Director Retirement Agreement for Directors Barnitz and Saunders: <br> Incorporated herein by reference to Exhibit 10.21 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2016 (File No. 000-20914).
10.22*	The Ohio Valley Bank Company Director Retirement Agreement, dated December 19, 2017, between Kimberly A. Canady and The Ohio Valley Bank<br> Company: Incorporated herein by reference to Exhibit 10.22 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2017 (File No. 000-20914).
10.22(a)*	Schedule A to Exhibit 10.22 identifying other Director Retirement Agreements between The Ohio Valley Bank Company and directors of Ohio<br> Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.22(a) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2019 (File No. 000-20914).
10.23*	The Ohio Valley Bank Company Director Deferred Fee Agreement, dated December 19, 2017, between Kimberly A. Canady and The Ohio Valley Bank<br> Company: Incorporated herein by reference to Exhibit 10.24 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2017 (File No. 000-20914).
10.23(a)*	Schedule A to Exhibit 10.24 identifying other Director Deferred Fee Agreements between The Ohio Valley Bank Company and directors of Ohio<br> Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.24(a) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2017 (File No. 000-20914).
13	Ohio Valley’s<br> Annual Report to Shareholders for the fiscal year ended December 31, 2020: Filed herewith. (Not deemed filed except for portions thereof specifically incorporated by reference into this Annual Report on Form 10-K.)
21	Subsidiaries of Ohio Valley: Filed<br> herewith.
23	Consent of Crowe LLP.: Filed<br> herewith.
31.1	Rule 13a-14(a)/15d-14(a)<br> Certification (Principal Executive Officer): Filed herewith.
31.2	Rule 13a-14(a)/15d-14(a)<br> Certification (Principal Financial Officer): Filed herewith.
32	Section 1350 Certifications<br> (Principal Executive Officer and Principal Accounting Officer): Filed herewith.

Exhibit Number	Exhibit Description
101.INS #	XBRL Instance Document: Submitted electronically herewith. #
101.SCH #	XBRL Taxonomy Extension Schema: Submitted electronically herewith. #
101.CAL #	XBRL Taxonomy Extension Calculation Linkbase: Submitted electronically herewith. #
101.DEF #	XBRL Taxonomy Extension Definition Linkbase: Submitted electronically herewith. #
101.LAB #	XBRL Taxonomy Extension Label Linkbase: Submitted electronically herewith. #
101.PRE #	XBRL Taxonomy Extension Presentation Linkbase: Submitted electronically herewith. #

* Compensatory plan or arrangement.

# Attached as Exhibit 101 to Ohio Valley’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 are the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Consolidated Statements of Condition at December 31, 2020 and December 31, 2019; (ii) Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018; (iv) Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2020, 2019 and 2018; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018; and (vi) Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ohio Valley has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			OHIO VALLEY BANC CORP.
Date:	March 24, 2021	By:	/s/Thomas E. Wiseman
			Thomas E. Wiseman
			Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 24, 2021 by the following persons on behalf of Ohio Valley and in the capacities indicated.

Name	Capacity
/s/Thomas E. Wiseman	Chief Executive Officer
Thomas E. Wiseman	(principal executive officer) and Director
/s/Scott W. Shockey	Senior Vice President and Chief
Scott W. Shockey	Financial Officer (principal financial officer and principal accounting officer)
/s/Larry E. Miller	Director
Larry E. Miller
/s/Anna P. Barnitz	Director
Anna P. Barnitz
/s/David W. Thomas	Director
David W. Thomas
/s/Brent A. Saunders	Director
Brent A. Saunders
/s/Harold A. Howe	Director
Harold A. Howe
/s/Brent R. Eastman	Director
Brent R. Eastman
/s/Kimberly A. Canady	Director
Kimberly A. Canady
/s/Edward J. Robbins	Director
Edward J. Robbins

EXHIBIT 4.1

OHIO VALLEY BANC CORP.

420 Third Avenue

Gallipolis, OH 45631

(740) 446-2631

March 24, 2021

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

RE: Ohio Valley Banc Corp. – Form 10-K for the fiscal year ended December 31, 2020

Gentlemen:

Ohio Valley Banc Corp., an Ohio corporation (“Ohio Valley”), is today filing an Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Form 10-K”), as executed on March 24, 2021.

Pursuant to the instructions relating to the Exhibits in Item 601(b)(4)(iii) of Regulation S-K, Ohio Valley hereby agrees to furnish the Commission, upon request, copies of instruments and agreements defining the rights of holders of its long-term debt and of the long-term debt of its consolidated subsidiaries, which are not being filed as exhibits to the Form 10-K. No such instrument or agreement represents long-term debt exceeding 10% of the total assets of Ohio Valley Banc Corp. and its subsidiaries on a consolidated basis.

Very truly yours,

/s/Thomas E. Wiseman
Thomas E. Wiseman
Chief Executive Officer
Ohio Valley Banc Corp.

EXHIBIT 10.2

SCHEDULE A TO EXHIBIT 10.1

The following individuals entered into Executive Group Life Split Dollar Plans with The Ohio Valley Bank Company identified below which are identical to the Executive Group Life Split Dollar Plan, dated December 31, 2011, between Thomas E. Wiseman and The Ohio Valley Bank Company filed herewith.

Name	Date of Agreement
Larry E. Miller II	August 19, 2009
Scott W. Shockey	March 19, 2009

EXHIBIT 10.3(a)

THE OHIO VALLEY BANK COMPANY

  THIRD AMENDED AND RESTATED

  DIRECTOR RETIREMENT AGREEMENT

This THIRD AMENDED AND RESTATED DIRECTOR RETIREMENT AGREEMENT (this “Agreement”) is adopted this 18th day of December, 2012 by and between THE OHIO VALLEY BANK COMPANY, a state-chartered commercial bank located in Gallipolis, Ohio (the “Company”), and Thomas E. Wiseman (the “Director”). This Agreement amends and restates the prior Second Amended and Restated Director Retirement Agreement between the Company and the Director dated December 28, 2007 (the “2007 Amendment”) which amended and restated the prior Amended and Restated Director Retirement Agreement between the Company and the Director dated January 13, 2004 (the “2004 Agreement”).

The parties intended the 2007 Amendment to be a material modification of the 2004 Agreement such that all amounts earned and vested prior to December 31, 2004 shall be subject to the provisions of Section 409A of the Code and the regulations promulgated thereunder. The purpose of the amendment and restatement reflected in this Agreement is to clarify certain provisions with respect to the requirements of the Employee Retirement Income Security Act of 1974, as amended, and Section 409A of Code. The terms of this Agreement do not materially change the terms of the 2007 Amendment.

This Agreement provides specified benefits to the Director, a member of a select group of management or highly compensated employees who contribute materially to the continued growth, development and future business success of the Company. This Agreement shall be unfunded for tax purposes.

Article 1

  Definitions

Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

1.1 “Beneficiary”

    means each designated person or entity, or the estate of the deceased Director, entitled to any benefits upon the death of the Director pursuant to Article 4.

1.2 “Beneficiary Designation Form” means the form established from time to time by the Plan Administrator that the Director completes, signs and returns to the Plan Administrator to designate one or more beneficiaries.

1.3 “Board” means the Board of Directors of the Company as from time to time constituted.

1.4 “Code” means the Internal Revenue Code of 1986, as amended, and all regulations and guidance thereunder, as may be amended from time to time.

1.5 “Disability” means the Director: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees or directors of the Company. Medical determination of Disability may be made by either the Social Security Administration or by the provider of an accident or health plan covering employees or directors of the Company, provided that the definition of “disability” applied under such insurance program complies with the requirements of the preceding sentence. Upon the request of the Plan Administrator, the Director must submit proof to the Plan Administrator of the Social Security Administration’s or the provider’s determination.

1.6 “Effective Date” means January 1, 2005.

1.7 “Normal Retirement Age” means the Annual Meeting of Shareholders following the calendar year in which the Director attains age seventy (70).

1.8 “Normal Retirement Date” means the later of Normal Retirement Age or Termination of Service.

1.9 “Plan Administrator” means the plan administrator described in Article 6.

1.10 “Plan Year” means each twelve (12) month period commencing on January 1 and ending on December 31 of each year.

1.11 “Specified Employee” means an employee who at the time of Termination of Service is a key employee of the Company, if any stock of the Company is publicly traded on an established securities market or otherwise. For purposes of this Agreement, an employee is a key employee if the employee meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding section 416(i)(5)) at any time during the twelve (12) month period ending on December 31 (the “identification period”). If the employee is a key employee during an identification period, the employee is treated as a key employee for purposes of this Agreement during the twelve (12) month period that begins on the first day of April following the close of the identification period.

1.12 “Termination

    for Cause” has the meaning set forth in Article 5.

1.13 “Termination

    of Service” means a “separation of service” within the meaning of Treasury Regulation §1.409A-1\(h\) of the Director’s service with the Company and any person with whom the Company would be considered a single employer under Code Sections 414\(b\) and
    \(c\) for reasons other than death or Disability.

1.14 “Years of Service” means the total number of twelve (12) month periods during which the Director has served on the Board.

Article 2

  Distributions During Lifetime

2.1 Normal Retirement Benefit. Upon Termination of Service on or after Normal Retirement Age, the Company shall distribute to the Director the benefit described in this Section 2.1 in lieu of any other benefit under this Article.

2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is the greater of: (i) fifty percent (50%) of the Director’s three (3) prior years average total annual or monthly Fees; or (ii) fifty percent (50%) of any consecutive three (3) prior years average total annual or monthly Fees.

2.1.2 Payment of Benefit. The Company shall distribute the annual benefit to the Director in twelve (12) equal monthly installments commencing on the first day of the month following Termination of Service. The annual benefit shall be distributed to the Director for two hundred forty (240) monthly installments.

2.2 Disability Benefit. If the Director experiences a Disability prior to Normal Retirement Age which results in Termination of Service, the Company shall distribute to the Director the benefit described in this Section 2.2 in lieu of any other benefit under this Article.

2.2.1 Amount of Benefit. The annual benefit under this Section 2.2 is the greater of: (i) fifty percent (50%) of the Director’s three (3) prior years average total annual or monthly Fees; or (ii) fifty percent (50%) of any consecutive three (3) prior years average total annual or monthly Fees.

2.2.2 Payment of Benefit. The Company shall distribute the annual benefit to the Director in twelve (12) equal monthly installments commencing on the first day of the month following Termination of Service. The annual benefit shall be distributed to the Director for two hundred forty (240) monthly installments.

2.3 Restriction on Commencement of Distributions. Notwithstanding any provision of this Agreement to the contrary, if the Director is considered a Specified Employee, the provisions of this Section 2.3 shall govern all distributions hereunder. If benefit distributions which would otherwise be made to the Director due to Termination of Service are limited because the Director is a Specified Employee, then such distributions shall not be made during the first six (6) months following Termination of Service. Rather, any distribution which would otherwise be paid to the Director during such period shall be accumulated and paid to the Director in a lump sum on the first day of the seventh month following Termination of Service. All subsequent distributions shall be paid in the manner specified.

2.4 Distributions

    Upon Taxation of Amounts Deferred.  If, pursuant to Code Section 409A, the Federal Insurance Contributions Act or other state, local or foreign tax, the Director becomes subject to tax on the amounts deferred hereunder, then the Company may make a
    limited distribution to the Director in a manner that conforms to the requirements of Code section 409A.  Any such distribution will decrease the Director’s benefits distributable under this Agreement.

2.5 Change in Form or Timing of Distributions. All changes in the form or timing of distributions hereunder must comply with the following requirements. The changes:

(a) may not accelerate the time or schedule of any distribution, except as provided in Code Section 409A and the regulations thereunder;

(b) must, for benefits distributable under Sections 2.1 and 2.2, delay the commencement of distributions for a minimum of five (5) years from the date the first

distribution was originally scheduled to be made; and

Article 3

  Distribution at Death

3.1 Death During Active Service. If the Director dies while in the active service of the Company, the Company shall distribute to the Beneficiary the benefit described in this Section 3.1. This benefit shall be distributed in lieu of the benefits under Article 2.

3.1.1 Amount of Benefit. The annual benefit under this Section 3.1 is the greater of: (i) fifty percent (50%) of the Director’s three (3) prior years average total annual or monthly Fees; or (ii) fifty percent (50%) of any consecutive three (3) prior years average total annual or monthly Fees.

3.1.2 Payment of Benefit. The Company shall distribute the annual benefit to the Beneficiary in twelve (12) equal monthly installments commencing the first day of the fourth month following the Director’s death. The annual benefit shall be distributed to the Beneficiary for sixty (60) months.

3.2 Death During Benefit Period or Before Benefit Distributions Commence. If the Director dies after any benefit distributions have commenced under this Agreement but before receiving all such distributions, or if the Director is entitled to benefit distributions under this Agreement but dies prior to the commencement of said benefit distributions, the Company shall distribute to the Beneficiary the lesser of: (i) the remaining benefits due the Director; or (ii) sixty (60) additional monthly benefits, commencing on the first day of the fourth month following the Director’s death.

Article 4

  Beneficiaries

4.1 In General. The Director shall have the right, at any time, to designate a Beneficiary to receive any benefit distributions under this Agreement upon the death of the Director. The Beneficiary designated under this Agreement may be the same as or different from the beneficiary designated under any other plan of the Company in which the Director participates.

4.2 Designation.

    The Director shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent.  If the Director names someone other than the Director’s spouse as a
    Beneficiary, the Plan Administrator may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Plan Administrator, executed by the Director’s spouse and returned to the Plan Administrator. 
    The Director’s beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Director or if the Director names a spouse as Beneficiary and the marriage is subsequently dissolved.  The Director shall have the right
    to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrator’s rules and procedures.  Upon the acceptance by the Plan Administrator of a new Beneficiary
    Designation Form, all Beneficiary designations previously filed shall be cancelled.  The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Director and accepted by the Plan Administrator prior to the
    Director’s death.

4.3 Acknowledgment.

    No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Plan Administrator or its designated agent.

4.4 No Beneficiary Designation. If the Director dies without a valid Beneficiary designation, or if all designated Beneficiaries predecease the Director, then the Director’s spouse shall be the designated Beneficiary. If the Director has no surviving spouse, any benefit shall be paid to the personal representative of the Director’s estate.

4.5 Facility of Distribution. If the Plan Administrator determines in its discretion that a benefit is to be distributed to a minor, to a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Plan Administrator may direct distribution of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any distribution of a benefit shall be a distribution for the account of the Director and the Beneficiary, as the case may be, and shall completely discharge any liability under this Agreement for such distribution amount.

Article 5

  General Limitations

5.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not distribute any benefit under this Agreement if the Company terminates the Director’s service for:

(a) Gross negligence or gross neglect of duties to the Company;

(b) Commission of a felony or of a gross misdemeanor involving moral turpitude; or

(c)	Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Director’s service and resulting<br> in material adverse effect on the Company.

5.2 Suicide or Misstatement. Notwithstanding any provision of this Agreement to the contrary, the Company shall not distribute any benefit under this Agreement if the Director commits suicide within two (2) years after the Effective Date, or if an insurance company which issued a life insurance policy covering the Director and owned by the Company denies coverage (i) for material misstatements of fact made by the Director on an application for such life insurance, or (ii) for any other reason.

5.3 Removal. Notwithstanding any provision of this Agreement to the contrary, the Company shall not distribute any benefit under this Agreement if the Director is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act.

5.4 Excess Parachute Payment. Notwithstanding any provision of this Agreement to the contrary, the Company shall not distribute any benefit under this Agreement to the extent the benefit would be an excess parachute payment under Section 280G of the Code.

Article 6

  Administration of Agreement

6.1 Plan Administrator Duties. The Plan Administrator shall administer this Agreement according to its express terms and shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Agreement and (ii) decide or resolve any and all questions, including interpretations of this Agreement, as may arise in connection with this Agreement to the extent the exercise of such discretion and authority does not conflict with Code Section 409A.

6.2 Agents. In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as the Plan Administrator sees fit, including acting through a duly appointed representative, and may from time to time consult with counsel who may be counsel to the Company.

6.3 Binding Effect of Decisions. Any decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in this Agreement.

6.4 Indemnity of Plan Administrator. The Company shall indemnify and hold harmless the Plan Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator.

6.5 Bank Information. To enable the Plan Administrator to perform its functions, the Company shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the Director’s death, Disability or Termination of Service, and such other pertinent information as the Plan Administrator may reasonably require.

Article 7

  Claims And Review Procedures

7.1 Claims Procedure. The Director or Beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:

7.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. If such a claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after such notice was received by the claimant. All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the claimant.

7.1.2 Timing of Company Response. The Company shall respond to such claimant within ninety (90) days after receiving the claim (or, if such claim is on account of disability, no later than forty-five (45) days). If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional ninety (90) days (or, if such claim is on account of disability, for not more than two additional thirty (30) day periods) by notifying the claimant in writing, prior to the end of the initial period, which an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. (If the claim is on account of disability, the notice will also include the standards for entitlement for a benefit, unresolved issues, and information needed to resolve those issues. The claimant will be given at least 45 days to supply any needed information. The period that the claimant takes to produce the needed information does not count against the period for deciding the claim.)

7.1.3 Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a) The specific reasons for the denial,

(b) A reference to the specific provisions of the Agreement on which the denial is based,

(c)	A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,
(d)	An explanation of the Agreement’s review procedures and the time limits applicable to such procedures,
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(e)	A statement of the claimant’s right to bring a civil action following an adverse benefit determination on review, and
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(f)	In the case of an adverse determination of a claim on account of disability, the information to the claimant shall include, to the extent necessary, the information set forth in Department of Labor Regulation<br> Section 2560.503-1(g)(1).
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7.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows:

7.2.1 Initiation - Written Request. To initiate the review, the claimant, within sixty (60) days after receiving the Company’s notice of denial (or, if such claim is a claim on account of disability, within one-hundred-eighty (180) days), must file with the Company a written request for review.

7.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits.

7.2.3 Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

7.2.4 Timing of Company Response. The Company shall respond in writing to such claimant within sixty (60) days after receiving the request for review (or, if such claim is on account of disability, no later than forty-five (45) days). If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional sixty (60) days (or, if such claim is on account of disability, no later than forty-five (45) days) by notifying the claimant in writing prior to the end of the initial period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.

7.2.5 Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a)	The specific reasons for the denial,
(b)	A reference to the specific provisions of the Agreement on which the denial is based,
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(c)	A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for<br> benefits, and
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(d)	A statement of the claimant’s right to bring a civil action, and
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(e)	In the case of an adverse determination of a claim on account of disability, if an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either (i) the<br> specific rule, guideline, protocol, or other similar criterion; or (ii) a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline,<br> protocol, or other similar criterion will be provided free of charge to the claimant upon request.
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Article 8

  Amendments and Termination

8.1 Amendments. This Agreement may be amended only by a written agreement signed by the Company and the Director. However, the Company may unilaterally amend this Agreement to conform to written directives to the Company from its auditors or banking regulators or to comply with legislative changes or tax law, including without limitation Section 409A of the Code and any and all Treasury regulations and guidance promulgated thereunder.

8.2 Plan Termination Generally. This Agreement may be terminated only by a written agreement signed by the Company and the Director. Except as provided in Section 8.3, the termination of this Agreement shall not cause a distribution of benefits under this Agreement. Rather, after such termination benefit distributions will be made at the earliest distribution event permitted under Article 2 or Article 3.

8.3 Plan Terminations Under Section 409A. Notwithstanding anything to the contrary in Section 8.2, if this Agreement terminates in the following circumstances:

(a)	Within thirty (30) days before or twelve (12) months after a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company as described in<br> Section 409A(a)(2)(A)(v) of the Code, provided that all distributions are made no later than twelve (12) months following such termination of the Agreement and further provided that all the Company’s arrangements which are substantially<br> similar to the Agreement are terminated so the Director and all participants in the Similar Arrangements (as defined below) are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12)<br> months of the termination of the arrangements;
(b)	Upon the Company’s dissolution or with the approval of a bankruptcy court provided that the amounts deferred under the Agreement are included in the Director’s gross income in the latest of (i) the calendar year in<br> which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practical; or
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(c)	Upon the Company’s termination of this and all other arrangements that would be aggregated with this Agreement pursuant to Treasury Regulations Section 1.409A-1(c) if the Director participated in such arrangements<br> (“Similar Arrangements”), provided that (i) the termination and liquidation does not occur proximate to a downturn in the financial health of the Company, (ii) all termination distributions are made no earlier than twelve (12) months and no<br> later than twenty-four (24) months following such termination, and (iii) the Company does not adopt any new arrangement that would be a Similar Arrangement for a minimum of three (3) years following the date the Company takes all necessary<br> action to irrevocably terminate and liquidate the Agreement;
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the Company may distribute the amount the Bank has accrued with respect to the Bank’s obligations hereunder, determined as of the date of the termination of the Agreement, to the Director in a lump sum subject to the above terms.

Article 9

  Miscellaneous

9.1 Binding Effect. This Agreement shall bind the Director and the Company and their beneficiaries, survivors, executors, administrators and transferees.

9.2 No Guarantee of Service. This Agreement is not a contract for employment. It does not give the Director the right to remain as a member of the Board, nor does it interfere with the Company’s right to discharge the Director. It also does not require the Director to remain a member of the Board nor interfere with the Director’s right to terminate service at any time.

9.3 Non-Transferability.

    Benefits under this Agreement cannot sold, transferred, assigned, pledged, attached or encumbered in any manner.

9.4 Tax Withholding and Reporting. The Company shall withhold any taxes that are required to be withheld, including but not limited to taxes owed under Section 409A of the Code and regulations thereunder, from the benefits provided under this Agreement. Director acknowledges that the Company’s sole liability regarding taxes is to forward any amounts withheld to the appropriate taxing authorities. The Company shall satisfy all applicable reporting requirements, including those under Section 409A of the Code and regulations thereunder.

9.5 Applicable Law. This Agreement and all rights hereunder shall be governed by the laws of the State of Ohio, except to the extent preempted by the laws of the United States of America.

9.6 Unfunded Arrangement. The Director and the Beneficiary are general unsecured creditors of the Company for the distribution of benefits under this Agreement. The benefits represent the mere promise by the Company to distribute such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Director’s life or other informal funding asset is a general asset of the Company to which the Director and the Beneficiary have no preferred or secured claim.

9.7 Reorganization.

    The Company shall not merge or consolidate into or with another Company, or reorganize, or sell substantially all of its assets to another bank, firm, or person unless such succeeding or continuing bank, firm, or person agrees to assume and
    discharge the obligations of the Company under this Agreement.  Upon the occurrence of such event, the term “Company” as used in this Agreement shall be deemed to refer to the successor or survivor bank.

9.8 Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Director as to the subject matter hereof. No rights are granted to the Director by virtue of this Agreement other than those specifically set forth herein.

9.9 Interpretation.

    Wherever the fulfillment of the intent and purpose of this Agreement requires, and the context will permit, the use of the masculine gender includes the feminine and use of the singular includes the plural

9.10 Alternative Action. In the event it shall become impossible for the Company or the Plan Administrator to perform any act required by this Agreement, the Company or Plan Administrator may in its discretion perform such alternative act as most nearly carries out the intent and purpose of this Agreement and is in the best interests of the Company, provided that such alternative acts do not violate Section 409A of the Code.

9.11 Headings. Article and section headings are for convenient reference only and shall not control or affect the meaning or construction of any of its provisions.

9.12 Validity. In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Agreement shall be construed and enforced as if such illegal and invalid provision has never been inserted herein.

9.13 Notice. Any notice or filing required or permitted to be given to the Plan Administrator under this Agreement shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:

The Ohio Valley Bank Company

Attn: BOLI Administrator

P O Box 240 420 Third Avenue

Gallipolis OH 45631-0240

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification.

Any notice or filing required or permitted to be given to the Director under this Agreement shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Director.

9.14 Compliance with Section 409A. This Agreement shall be interpreted and administered consistent with Code Section 409A.

IN WITNESS WHEREOF, the Director and an authorized representative of the Company have signed this Agreement.

DIRECTOR:		THE OHIO VALLEY BANK COMPANY
Thomas E. Wiseman	By:	Title: AVP and Assistant Secretary

EXHIBIT 10.3(b)

SCHEDULE A TO EXHIBIT 10.3(a)

The following individuals entered into director retirement agreements with The Ohio Valley Bank Company which are identical to the Third Amended and Restated Director Retirement Agreement, dated December 18, 2012, between Thomas E. Wiseman and The Ohio Valley Bank Company filed herewith.

Name	Date of Agreement
Harold A. Howe	December 18, 2012
David W. Thomas	December 18, 2012

EXHIBIT 10.4(a)

SCHEDULE A TO EXHIBIT 10.4

The following individuals entered into Salary Continuation Plans with The Ohio Valley Bank Company which are identical to the Salary Continuation Plan, dated January 26, 2016, between Larry E. Miller and The Ohio Valley Bank Company filed herewith.

Name	Date of Agreement
Scott W. Shockey	July 9, 2020

EXHIBIT 10.7(a)

THE OHIO VALLEY BANK COMPANY

AMENDED AND RESTATED

EXECUTIVE DEFERRED COMPENSATION AGREEMENT

This AMENDED AND RESTATED EXECUTIVE DEFERRED COMPENSATION AGREEMENT (this “Agreement”) is adopted this 18th day of December 2012 by and between THE OHIO VALLEY BANK COMPANY, located in Gallipolis, Ohio (the “Company”), and Thomas E. Wiseman (the “Executive”). This Agreement amends and restates the prior Executive Deferred Compensation Agreement between the Company and the Executive dated December 31, 2009 (the “2009 Agreement”). The 2009 Agreement was subsequently amended on May 17, 2010.

The purpose of the amendment and restatement reflected in this Agreement is to clarify certain provisions with respect to the requirements of the Employee Retirement Income Security Act of 1974, as amended, and Section 409A of Code. The terms of this Agreement do not materially change the terms of the 2009 Agreement.

The purpose of this Agreement is to provide specified benefits to the Executive, a member of a select group of management or highly compensated employees who contribute materially to the continued growth, development and future business success of the Company. This Agreement shall be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act (“ERISA”).

Article 1

Definitions

Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

1.0	“Base Salary” means the annual cash Compensation relating to services performed during any calendar year, excluding distributions from nonqualified deferred compensation<br> plans, bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, and other fees, and automobile and other allowances paid to the Executive for employment rendered (whether or<br> not such allowances are included in the Executive’s gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Executive pursuant to all qualified or non-qualified plans of the<br> Company and shall be calculated to include amounts not otherwise included in the Executive’s gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by the Company; provided, however, that all such<br> amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Executive.
1.1	“Beneficiary” means each designated person or entity, or the estate of the deceased Executive, entitled to any benefits upon the death of the Executive pursuant to Article<br> 6.
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1.2	“Beneficiary Designation Form” means the form established from time to time by the Plan Administrator that the Executive completes, signs and returns to the Plan<br> Administrator to designate one or more beneficiaries.
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1.3 “Board” means the Board of Directors of the Company as from time to time constituted.

1.4	“Bonus” means the cash bonus, if any, awarded to the Executive for services performed during the Plan Year that does not qualify as Performance-Based Compensation.
1.5	“Code” means the Internal Revenue Code of 1986, as amended, and all regulations and guidance thereunder, as may be amended from time to time.
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1.6	“Compensation” means the total annual Bonus, Base Salary and Performance-Based Compensation paid to the Executive during a Plan Year.
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1.7	“Deferral Account” means the Company’s accounting of the Executive’s accumulated Deferrals plus accrued interest.
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1.8	“Deferral Election Form” means the form or forms established from time to time by the Plan Administrator that the Executive completes, signs and returns to the Plan<br> Administrator to designate the amount of Deferrals.
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1.9	“Deferrals” means the amount of Compensation which the Executive elects to defer according to this Agreement.
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1.10	“Disability” means the Executive: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can<br> be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death<br> or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees or directors of<br> the Company. Medical determination of Disability may be made by either the Social Security Administration or by the provider of an accident or health plan covering employees or directors of the Company, provided that the definition of<br> “disability” applied under such insurance program complies with the requirements of the preceding sentence. Upon the request of the Plan Administrator, the Executive must submit proof to the Plan Administrator of the Social Security<br> Administration’s or the provider’s determination.
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1.11 “Effective Date” means January 1, 2005.

1.12 “Normal Retirement Age” means the Executive’s age sixty-five (65).

1.13	“Performance-Based Compensation” means any amount earned over a period of at least twelve (12) months that is awarded to the Executive and qualifies as “performance-based<br> compensation” under Code Section 409A.

1.14       “Plan Administrator” means the plan administrator described in Article 8.

1.15	“Plan Year” means each twelve (12) month period commencing on January 1 and ending on December 31 of each year.
1.16	“Specified Employee” means an employee who at the time of Termination of Employment is a key employee of the Company, if any stock<br> of the Company is publicly traded on an established securities market or otherwise. For purposes of this Agreement, an employee is a key employee if the employee meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied<br> in accordance with the regulations thereunder and disregarding section 416(i)(5)) at any time during the twelve (12) month period ending on December 31 (the “identification period”). If the employee is a key employee during an identification<br> period, the employee is treated as a key employee for purposes of this Agreement during the twelve (12) month period that begins on the first day of April following the close of the identification period.
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1.15

“Plan Year” means each twelve (12) month period commencing on January 1 and ending on December 31 of each year.

1.16

“Specified Employee” means an employee who at the time of Termination of Employment is a key employee of the Company, if any stock of the Company is publicly traded on an established securities market or otherwise. For purposes of this Agreement, an employee is a key employee if the employee meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding section 416(i)(5)) at any time during the twelve (12) month period ending on December 31 (the “identification period”). If the employee is a key employee during an identification period, the employee is treated as a key employee for purposes of this Agreement during the twelve (12) month period that begins on the first day of April following the close of the identification period.

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1.17 “Termination for Cause” has the meaning set forth in Article 7.

1.18	“Termination of Employment” means a “separation of service” within the meaning of Treasury Regulation §1.409A-1(h) of the Executive’s service with the Company and any person<br> with whom the Company would be considered a single employer under Code Sections 414(b) and (c) for reasons other than death.
1.19	“Unforeseeable Emergency” means a severe financial hardship to the Executive within the meaning of Treasury Regulation §1.409A-3(i)(3) resulting<br><br><br><br><br><br><br> from an illness or accident of the Executive, the Executive’s spouse, the Beneficiary, or the Executive’s dependent (as defined in Code Section 152 without regard to Code Sections 152(b)(1), (b)(2) and (d)(1)(B)), loss of the Executive’s<br> property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Executive.
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1.18

“Termination of Employment” means a “separation of service” within the meaning of Treasury Regulation §1.409A-1(h) of the Executive’s service with the Company and any person with whom the Company would be considered a single employer under Code Sections 414(b) and (c) for reasons other than death.

1.19

“Unforeseeable Emergency” means a severe financial hardship to the Executive within the meaning of Treasury Regulation §1.409A-3(i)(3) resulting from an illness or accident of the Executive, the Executive’s spouse, the Beneficiary, or the Executive’s dependent (as defined in Code Section 152 without regard to Code Sections 152(b)(1), (b)(2) and (d)(1)(B)), loss of the Executive’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Executive.

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Article 2

Deferral Election

2.1	Elections Generally. The Executive may annually file a Deferral Election Form with the Plan Administrator no later than the end of the Plan Year preceding the Plan Year in<br> which services leading to such Compensation will be performed. Notwithstanding the foregoing, if any Compensation is determined to be Performance-Based Compensation, the Executive shall have until six (6) months before the end of the service<br> period on which the Performance-Based Compensation is based to file a Deferral Election Form with respect to such Performance-Based Compensation provided that (i) the election satisfies all the requirements in Treas. Reg. §1.409A-2(a)(8) and<br> (ii) such Performance-Based Compensation has not become readily ascertainable. Notwithstanding anything to the contrary, the Executive may not elect to defer Compensation in an amount greater than $10,000 each Plan Year, or such greater or<br> lesser amount as may be established by the Board each Plan Year.
2.2	Initial Election. After being notified by the Plan Administrator of becoming eligible to participate in this Agreement, the Executive may make an initial deferral election<br> by delivering to the Plan Administrator signed Deferral Election Forms and a Beneficiary Designation Form within thirty (30) days of becoming eligible with respect to Compensation to be paid for services to be performed after such election is<br> made. The Deferral Election Form shall set forth the amount of Compensation, Bonus and/or Performance-Based Compensation to be deferred. However, if the Executive was eligible to participate in any other account balance plans sponsored by<br> the Company (as referenced in Code Section 409A) prior to becoming eligible to participate in this Agreement, (i) the initial election to defer any Compensation under this Agreement shall not be effective until the Plan Year following the<br> Plan Year in which the Executive became eligible to participate in this Agreement, and (ii) any election to defer Compensation that is determined to be Performance-Based Compensation shall be effective immediately if made more than six (6)<br> months prior to the end of the period to which the Performance-Based Compensation relates, provided that (a) the election satisfies all the requirements in Treas. Reg. §1.409A-2(a)(8) and (b) such Performance-Based Compensation has not become<br> readily ascertainable, otherwise it too shall be effective beginning the Plan Year following the Plan Year in which the Executive became eligible to participate in this Agreement.
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2.1

Elections Generally. The Executive may annually file a Deferral Election Form with the Plan Administrator no later than the end of the Plan Year preceding the Plan Year in which services leading to such Compensation will be performed. Notwithstanding the foregoing, if any Compensation is determined to be Performance-Based Compensation, the Executive shall have until six (6) months before the end of the service period on which the Performance-Based Compensation is based to file a Deferral Election Form with respect to such Performance-Based Compensation provided that (i) the election satisfies all the requirements in Treas. Reg. §1.409A-2(a)(8) and (ii) such Performance-Based Compensation has not become readily ascertainable. Notwithstanding anything to the contrary, the Executive may not elect to defer Compensation in an amount greater than $10,000 each Plan Year, or such greater or lesser amount as may be established by the Board each Plan Year.

2.2

Initial Election. After being notified by the Plan Administrator of becoming eligible to participate in this Agreement, the Executive may make an initial deferral election by delivering to the Plan Administrator signed Deferral Election Forms and a Beneficiary Designation Form within thirty (30) days of becoming eligible with respect to Compensation to be paid for services to be performed after such election is made. The Deferral Election Form shall set forth the amount of Compensation, Bonus and/or Performance-Based Compensation to be deferred. However, if the Executive was eligible to participate in any other account balance plans sponsored by the Company (as referenced in Code Section 409A) prior to becoming eligible to participate in this Agreement, (i) the initial election to defer any Compensation under this Agreement shall not be effective until the Plan Year following the Plan Year in which the Executive became eligible to participate in this Agreement, and (ii) any election to defer Compensation that is determined to be Performance-Based Compensation shall be effective immediately if made more than six (6) months prior to the end of the period to which the Performance-Based Compensation relates, provided that (a) the election satisfies all the requirements in Treas. Reg. §1.409A-2(a)(8) and (b) such Performance-Based Compensation has not become readily ascertainable, otherwise it too shall be effective beginning the Plan Year following the Plan Year in which the Executive became eligible to participate in this Agreement.

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2.3	Election Changes. The Executive may modify the amount of Compensation, Bonus and/or Performance-Based Compensation to be deferred annually by filing a new Deferral Election<br> Form with the Company. The modified deferral shall not be effective until the calendar year following the year in which such subsequent Deferral Election Form is received by the Company.
2.4	Hardship. If an Unforeseeable Emergency occurs, the Executive, by written instructions to the Company, may discontinue deferrals hereunder. Any subsequent Deferral<br> Elections may be made only in accordance with Section 2.3 hereof.
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Article 3

Deferral Account

3.1	Establishing and Crediting. The Company shall establish a Deferral Account on its books for the Executive and shall credit to the Deferral Account the following amounts:

(a) Any Deferrals hereunder; and

(b) Interest as follows:

(i)	At the end of each Plan Year and immediately prior to the payment of any<br><br> benefits, interest shall be credited on the Deferral Account balance at an annual rate determined by the Board of Directors in its sole discretion, compounded annually; and
(ii)	At the end of each Plan Year during any applicable installment period,<br><br> interest shall be credited on the Deferral Account balance at an annual rate determined by the Board of Directors in its sole discretion, compounded annually.
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3.2	Statement of Accounts. The Plan Administrator shall provide to the Executive, within one hundred twenty (120) days after the end of each Plan Year, a statement setting<br> forth the benefits to be distributed under this Agreement.
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3.3	Accounting Device Only. The Deferral Account is solely a device for measuring amounts to be paid under this Agreement. The Deferral Account is not a trust fund of any kind. The Executive is a general unsecured creditor of the Company for the distribution of benefits. The benefits represent the mere Company promise to distribute such benefits. The Executive’s rights are not subject in<br> any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by the Executive’s creditors.
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Article 4

Distributions During Lifetime

4.1	Normal Retirement Benefit. Upon Termination of Employment, the Company shall distribute to the Executive the benefit described in this Section 4.1 in lieu of any other<br> benefit under this Article.
4.1.1	Amount of Benefit. The benefit under this Section 4.1 is the Deferral Account balance at Termination of Employment.
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4.1.2	Payment of Benefit. The Company shall distribute the benefit to the Executive in one hundred twenty (120) consecutive monthly installments commencing on the first day of<br> the month following Termination of Employment.
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4.2	Disability Benefit. If the Executive experiences a Disability which results in Termination of Employment, the Company shall distribute to the Executive the benefit<br> described in this Section 4.2 in lieu of any other benefit under this Article.
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4.2.1	Amount of Benefit. The benefit under this Section 4.2 is the Deferral Account balance at Termination of Employment.
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4.2.2	Payment of Benefit. The Company shall distribute the benefit to the Executive in one hundred twenty (120) consecutive monthly installments commencing on the first day of<br> the month following Termination of Employment.
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4.3	Hardship Distribution. If an Unforeseeable Emergency occurs, the Executive may petition the Board to receive a distribution from the Agreement (a “Hardship Distribution”). <br> The Board in its sole discretion may grant such petition. If granted, the Executive shall receive, within sixty (60) days, a distribution from the Agreement only to the extent deemed necessary by the Board to remedy the Unforeseeable<br> Emergency, plus an amount necessary to pay taxes reasonably anticipated as a result of the distribution. In any event, the maximum amount which may be paid out pursuant to this Section 4.3 is the Deferral Account balance as of the day the<br> Executive petitioned the Board to receive a Hardship Distribution. Such a distribution shall reduce the Deferral Account balance. A distribution under this Section 4.3 may not be made to the extent that such emergency is or may be relieved<br> through reimbursement or compensation from insurance or otherwise, by liquidation of the Executive’s assets to the extent the liquidation of such assets would not cause severe financial hardship, or by cancellation of deferrals in accordance<br> with Section 2.4 of this Agreement.
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4.4	Restriction on Commencement of Distributions. Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee, the<br> provisions of this Section 4.4 shall govern all distributions hereunder. If benefit distributions which would otherwise be made to the Executive due to Termination of Employment are limited because the Executive is a Specified Employee, then<br> such distributions shall not be made during the first six (6) months following Termination of Employment. Rather, any distribution which would otherwise be paid to the Executive during such period shall be accumulated and paid to the<br> Executive in a lump sum on the first day of the seventh month following Termination of Employment. All subsequent distributions shall be paid in the manner specified.
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4.5	Distributions Upon Taxation of Amounts Deferred. If, pursuant to Code Section 409A, the Federal Insurance Contributions Act or other state, local or foreign tax, the<br> Executive becomes subject to tax on the amounts deferred hereunder, then the Company may make a limited distribution to the Executive in a manner that conforms to the requirements of Code section 409A. Any such distribution will decrease the<br> Executive’s benefits distributable under this Agreement.
4.6	Change in Form or Timing of Distributions. All changes in the form or timing of distributions hereunder must comply with the following requirements. The changes:
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(a)	may not accelerate the time or schedule of any distribution, except as provided in Code Section 409A and the regulations thereunder;
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(b)	must, for benefits distributable under Sections 4.1 and 4.2, delay the commencement of distributions for a minimum of five (5) years from the date the first distribution was originally scheduled to be made; and
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(c)	must take effect not less than twelve (12) months after the election is made.
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Article 5

Distributions at Death

5.1	Death During Active Service. If the Executive dies [while in active service to the Company/prior to Termination of Employment], the Company shall distribute to the<br> Beneficiary the benefit described in this Section 5.1. This benefit shall be distributed in lieu of the benefits under Article 4.
5.1.1	Amount of Benefit. The benefit under Section 5.1 is the greater of: a) the Deferral Account balance as of the Executive’s death; or b) the projected Deferral Account<br> balance had the Executive continued to defer at the current rate until Normal Retirement Age.
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5.1.2	Payment of Benefit. The Company shall distribute the benefit to the Beneficiary in one hundred twenty (120) consecutive monthly installments commencing on the first day of<br> the fourth month following the date of the Executive’s death.
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5.2	Death During Distribution of a Benefit. If the Executive dies after any benefit distributions have commenced under this Agreement but before receiving all such<br> distributions, the Company shall distribute to the Beneficiary the remaining benefits at the same time and in the same amounts that would have been distributed to the Executive had the Executive survived.
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5.3	Death After Termination of Employment But Before Payment of a Lifetime Benefit Commences. If the Executive is entitled to benefit distributions under this Agreement, but<br> dies prior to the commencement of said benefit distributions, the Company shall pay to the Executive’s beneficiary the same benefits that the Executive was entitled to prior to death except that the benefit distributions shall commence on the<br> first day of the fourth month following the Executive’s death.
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Article 6

Beneficiaries

6.1	In General. The Executive shall have the right, at any time, to designate a Beneficiary to receive any benefit distributions under this Agreement upon the death of the<br> Executive. The Beneficiary designated under this Agreement may be the same as or different from the beneficiary designated under any other plan of the Company in which the Executive participates.

6.2	Designation. The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its<br> designated agent. If the Executive names someone other than the Executive’s spouse as a Beneficiary, the Plan Administrator may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the<br> Plan Administrator, executed by the Executive’s spouse and returned to the Plan Administrator. The Executive’s beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive<br> names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the<br> Plan Administrator’s rules and procedures. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be entitled to<br> rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator prior to the Executive’s death.
6.3	Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Plan Administrator<br> or its designated agent.
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6.4	No Beneficiary Designation. If the Executive dies without a valid Beneficiary designation, or if all designated Beneficiaries predecease the Executive, then the Executive’s<br> spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, any benefit shall be paid to the personal representative of the Executive’s estate.
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6.5	Facility of Distribution. If the Plan Administrator determines in its discretion that a benefit is to be distributed to a minor, to a person declared incompetent or to a<br> person incapable of handling the disposition of that person’s property, the Plan Administrator may direct distribution of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent<br> person or incapable person. The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any distribution of a benefit shall be a distribution for the<br> account of the Executive and the Beneficiary, as the case may be, and shall completely discharge any liability under this Agreement for such distribution amount.
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Article 7

General Limitations

7.1	Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not distribute any benefit under this Agreement in excess of the<br> Deferrals if the Company terminates the Executive’s employment for:
(a)	Gross negligence or gross neglect of duties to the Company;
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(b)	Commission of a felony or of a gross misdemeanor involving moral turpitude; or
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(c)	Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive’s employment and resulting in a material adverse effect on the Company.
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7.2	Suicide or Misstatement. Notwithstanding any provision of this Agreement to the contrary, the Company shall not distribute any benefit under this Agreement in excess of the<br> Deferrals if the Executive commits suicide within two (2) years after the Effective Date, or if an insurance company which issued a life insurance policy covering the Executive and owned by the Company denies coverage (i) for material<br> misstatements of fact made by the Executive on an application for such life insurance, or (ii) for any other reason.
7.3	Removal. Notwithstanding any provision of this Agreement to the contrary, the Company shall not distribute any benefit under this Agreement in excess of the Deferrals<br> (i.e., Deferral Account minus interest credited thereon) if the Executive is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act.
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7.4	Excess Parachute Payment. Notwithstanding any provision of this Agreement to the contrary, the Company shall not distribute any benefit under this Agreement in excess of<br> the Deferrals to the extent the benefit would be an excess parachute payment under Section 280G of the Code.
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Article 8

Administration of Agreement

8.1	Plan Administrator Duties. The Plan Administrator shall administer this Agreement according to its express terms and shall also have the discretion and authority to (i)<br> make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Agreement and (ii) decide or resolve any and all questions, including interpretations of this Agreement, as may arise in connection with<br> this Agreement to the extent the exercise of such discretion and authority does not conflict with Code Section 409A.
8.2	Agents. In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as the Plan Administrator sees<br> fit, including acting through a duly appointed representative, and may from time to time consult with counsel who may be counsel to the Company.
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8.3	Binding Effect of Decisions. Any decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration,<br> interpretation or application of this Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in this Agreement.
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8.4	Indemnity of Plan Administrator. The Company shall indemnify and hold harmless the Plan Administrator against any and all claims, losses, damages, expenses or liabilities<br> arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator.
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8.5	Bank Information. To enable the Plan Administrator to perform its functions, the Company shall supply full and timely information to the Plan Administrator on all matters<br> relating to the date and circumstances of the Executive’s death, Disability or Termination of Employment, and such other pertinent information as the Plan Administrator may reasonably require.
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Article 9

Claims and Review Procedures

9.1	Claims Procedure. The Executive or Beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for<br> such benefits as follows:

9.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. If such a claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after such notice was received by the claimant. All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the claimant.

9.1.2 Timing of Company Response. The Company shall respond to such claimant within ninety (90) days after receiving the claim (or, if such claim is on account of disability, no later than forty-five (45) days). If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional ninety (90) days (or, if such claim is on account of disability, for not more than two additional thirty (30) day periods) by notifying the claimant in writing, prior to the end of the initial period, which an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. (If the claim is on account of disability, the notice will also include the standards for entitlement for a benefit, unresolved issues, and information needed to resolve those issues. The claimant will be given at least 45 days to supply any needed information. The period that the claimant takes to produce the needed information does not count against the period for deciding the claim.)

9.1.3 Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a)	The specific reasons for the denial,
(b)	A reference to the specific provisions of the Agreement on which the denial is based,
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(c)	A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,
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(d)	An explanation of the Agreement’s review procedures and the time limits applicable to such procedures,
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(e)	A statement of the claimant’s right to bring a civil action following an adverse benefit determination on review under ERISA Section 502(a), and
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(f)	In the case of an adverse determination of a claim on account of disability, the information to the claimant shall include, to the extent necessary, the information set forth in Department of Labor Regulation<br> Section 2560.503-1(g)(1).
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9.2	Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as<br> follows:
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9.2.1 Initiation - Written Request. To initiate the review, the claimant, within sixty (60) days after receiving the Company’s notice of denial (or, if such claim is a claim on account of disability, within one-hundred-eighty (180) days), must file with the Company a written request for review.

9.2.2 Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

9.2.3 Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

9.2.4 Timing of Company Response. The Company shall respond in writing to such claimant within sixty (60) days after receiving the request for review (or, if such claim is on account of disability, no later than forty-five (45) days). If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional sixty (60) days (or, if such claim is on account of disability, no later than forty-five (45) days) by notifying the claimant in writing prior to the end of the initial period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.

9.2.5 Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a)	The specific reasons for the denial,
(b)	A reference to the specific provisions of the Agreement on which the denial is based,
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(c)	A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA<br> regulations) to the claimant’s claim for benefits, and
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(d)	A statement of the claimant’s right to bring a civil action under ERISA Section 502(a), and
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(e)	In the case of an adverse determination of a claim on account of disability, if an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either (i) the<br> specific rule, guideline, protocol, or other similar criterion; or (ii) a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline,<br> protocol, or other similar criterion will be provided free of charge to the claimant upon request.
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Article 10

Amendments and Termination

10.1

Amendments. This Agreement may be amended only by a written agreement signed by the Company and the Executive. However, the Company may unilaterally amend this Agreement to conform to written directives to the Company from its auditors or banking regulators or to comply with legislative changes or tax law, including without limitation Section 409A of the Code and any and all Treasury regulations and guidance promulgated thereunder.

10.2	Plan Termination Generally. This Agreement may be terminated only by a written agreement signed by the Company and the Executive. Except as provided in Section 10.3, the<br> termination of this Agreement shall not cause a distribution of benefits under this Agreement. Rather, after such termination benefit distributions will be made at the earliest distribution event permitted under Article 4 or Article 5.
10.3	Plan Terminations Under Section 409A. Notwithstanding anything to the contrary in Section 10.2, if this Agreement terminates in the following circumstances:
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(a)	Within thirty (30) days before or twelve (12) months after a change in the<br><br> ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company as described in Section 409A(a)(2)(A)(v) of the Code, provided that all distributions are made no later than twelve (12)<br> months following such termination of the Agreement and further provided that all the Company’s arrangements which are substantially similar to the Agreement are terminated so the Executive and all participants in the Similar Arrangements (as<br> defined below) are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the termination of the arrangements;
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(b)	Upon the Company’s dissolution or with the approval of a bankruptcy court<br><br> provided that the amounts deferred under the Agreement are included in the Executive’s gross income in the latest of (i) the calendar year in which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a<br> substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practical; or
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(c)	Upon the Company’s termination of this and all other arrangements that would be<br><br> aggregated with this Agreement pursuant to Treasury Regulations Section 1.409A-1(c) if the Executive participated in such arrangements (“Similar Arrangements”), provided that (i) the termination and liquidation does not occur proximate to a<br> downturn in the financial health of the Company, (ii) all termination distributions are made no earlier than twelve (12) months and no later than twenty-four (24) months following such termination, and (iii) the Company does not adopt any new<br> arrangement that would be a Similar Arrangement for a minimum of three (3) years following the date the Company takes all necessary action to irrevocably terminate and liquidate the Agreement;
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the Company may distribute Deferral Account balance, determined as of the date of the termination of the Agreement, to the Executive in a lump sum subject to the above terms.

Article 11

Miscellaneous

11.1	Binding Effect. This Agreement shall bind the Executive and the Company and their beneficiaries, survivors, executors, administrators and transferees.
11.2	No Guarantee of Employment. This Agreement is not a contract for employment. It does not give the Executive the right to remain as an employee of the Company, nor does it<br> interfere with the Company’s right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive’s right to terminate employment at any time.
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11.3	Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.
11.4	Tax Withholding and Reporting. The Company shall withhold any taxes that are required to be withheld, including but not limited to taxes owed under Section 409A of the Code<br> and regulations thereunder, from the benefits provided under this Agreement. Executive acknowledges that the Company’s sole liability regarding taxes is to forward any amounts withheld to the appropriate taxing authorities. The Company<br> shall satisfy all applicable reporting requirements, including those under Section 409A of the Code and regulations thereunder.
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11.5	Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Ohio, except to the extent preempted by the laws of the United States<br> of America.
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11.6	Unfunded Arrangement. The Executive and the Beneficiary are general unsecured creditors of the Company for the distribution of benefits under this Agreement. The benefits<br> represent the mere promise by the Company to distribute such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by<br> creditors. Any insurance on the Executive’s life or other informal funding asset is a general asset of the Company to which the Executive and the Beneficiary have no preferred or secured claim.
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11.7	Reorganization. The Company shall not merge or consolidate into or with another Company, or reorganize, or sell substantially all of its assets to another bank, firm, or<br> person unless such succeeding or continuing bank, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term “Company” as used in this Agreement shall be<br> deemed to refer to the successor or survivor bank.
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11.8	Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the<br> Executive by virtue of this Agreement other than those specifically set forth herein.
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11.9	Interpretation. Wherever the fulfillment of the intent and purpose of this Agreement requires, and the context will permit, the use of the masculine gender includes the<br> feminine and use of the singular includes the plural
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11.10	Alternative Action. In the event it shall become impossible for the Company or the Plan Administrator to perform any act required by this Agreement, the Company or Plan<br> Administrator may in its discretion perform such alternative act as most nearly carries out the intent and purpose of this Agreement and is in the best interests of the Company, provided that such alternative acts do not violate Section 409A<br> of the Code.
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11.11	Headings. Article and section headings are for convenient reference only and shall not control or affect the meaning or construction of any of its provisions.
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11.12	Validity. In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but<br> this Agreement shall be construed and enforced as if such illegal and invalid provision has never been inserted herein.
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11.13	Notice. Any notice or filing required or permitted to be given to the Company and/or the Plan Administrator under this Agreement shall be sufficient if in writing and<br> hand-delivered, or sent by registered or certified mail, to the address below:

The Ohio Valley Bank Company

  Attn:  BOLI Administrator

  P O Box 240 420 Third Avenue

Gallipolis OH 45631

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification.

Any notice or filing required or permitted to be given to the Executive under this Agreement shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Executive.

11.14	Compliance with Section 409A. This Agreement shall be interpreted and administered consistent with Code Section 409A.

IN WITNESS WHEREOF, the Executive and an authorized representative of the Company have signed this Agreement.

EXECUTIVE:		COMPANY:
		THE OHIO VALLEY BANK COMPANY
	By:
Thomas E. Wiseman	Title:

EXHIBIT 10.7(d)

SCHEDULE A TO EXHIBIT 10.7(a)

The following individuals entered into Executive Deferred Compensation Plans with The Ohio Valley Bank Company identified below which are identical to the Executive Deferred Compensation Plan, dated December 18, 2012, between Thomas E. Wiseman and The Ohio Valley Bank Company filed herewith.

Name	Date of Agreement
Scott W. Shockey	December 18, 2012

EXHIBIT 10.7(e)

SCHEDULE A TO EXHIBIT 10.7(b)

The following individuals entered into a First Amendment to the Ohio Valley Bank Company Executive Deferred Compensation Agreement with The Ohio Valley Bank Company which are identical to the First Amendment to the Ohio Valley Bank Company Executive Deferred Compensation Agreement, dated January 26, 2016, filed herewith.

Name	Date of Agreement
Thomas E. Wiseman	January 26, 2016
Scott W. Shockey	January 26, 2016

EXHIBIT 10.8

SUMMARY OF COMPENSATION FOR

DIRECTORS AND NAMED EXECUTIVE OFFICERS

OF OHIO VALLEY BANC CORP.

Directors

All of the directors of Ohio Valley Banc Corp. (“Ohio Valley”) also serve as directors of its subsidiary, The Ohio Valley Bank Company (the “Bank”). The directors of Ohio Valley are paid by the Bank for their services rendered as directors of the Bank, not Ohio Valley. Each director of the Bank who is not an employee of Ohio Valley or any of its subsidiaries (a “Non-Employee Director”) receives $750 per month for his or her services. Each director of the Bank who is an employee of Ohio Valley or any of its subsidiaries (an “Employee Director”) receives $350 per month for his or her services. In addition, each director of the Bank receives an annual retainer of $17,000 paid in January or February for non-employee directors and monthly for employee directors of each year for services to be rendered during the year, pro-rated for time served for new or retiring members.

Each Non-Employee Director who is a member of the Executive Committee of the Bank receives $2,000 per month for his or her services. In addition, each Non-Employee Director who is a member of the Executive Committee receives an annual retainer of $16,695 paid in January or February of each year for services to be rendered during the year as members of that committee, pro-rated for time served for new or retiring members. Employee Directors receive no additional compensation for serving on the Executive Committee.

Brent A. Saunders, LPA received retainer fees of $21,000 for legal services to the Company and its subsidiaries during 2020, as approved by the Board of Directors in December 2019. In December 2020, the Board of Directors of Ohio Valley approved the payment to Mr. Saunders of $22,000 in retainer fees for legal services to the Company and its subsidiaries during 2021.

The Bank maintains a life insurance policy for each director with a death benefit of two times annual director fees at time of death, reduced by 35% at age 65 and 50% at age 70, as part of the Bank’s group term life insurance program. The life insurance policies terminate upon retirement. Messrs. Miller and Wiseman, as employees of the Bank, are excluded from this benefit under the terms of the Bank’s group term life insurance program. Each director is entitled to retirement and deferred compensation agreements, and the Bank has executed agreements with all such persons, except that Mr. Miller has elected not to participate in the director deferred compensation plan. These documents are filed as exhibits to various documents filed by Ohio Valley with the Securities and Exchange Commission, as set forth in the Exhibit Index to Ohio Valley’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Named Executive Officers

The following sets forth the current salaries of the executive officers of Ohio Valley named in the Summary Compensation Table in Ohio Valley’s proxy statement (the “Named Executive Officers”):

Name	Current Salary
Thomas E. Wiseman	385,020
Larry E. Miller II	287,845
Scott W. Shockey	202,415

Certain Named Executive Officers are entitled to participate in several benefit arrangements, including the Ohio Valley Banc Corp. Bonus Program, the Ohio Valley Bank Company Executive Group Life Split Dollar Plan, the Executive Deferred Compensation Plan, and a supplemental executive retirement plan (currently only for Messrs. Wiseman, Miller and Shockey). These benefit plans are set forth in exhibits to various documents filed by Ohio Valley, as set forth in the Exhibit Index to Ohio Valley’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and described in Ohio Valley’s proxy statement for its 2021 annual meeting of shareholders. In addition, Named Executive Officers are entitled to participate in various benefit plans available to all employees, including a Profit Sharing Retirement Plan, a 401(k) plan, an employee stock ownership plan, group term life insurance, health insurance, disability insurance and a flexible compensation/cafeteria plan, as described in Ohio Valley's proxy statement for its 2021 annual meeting of shareholders.

EXHIBIT 10.9

SUMMARY OF BONUS PROGRAM

OF OHIO VALLEY BANC CORP.

The following is a description of the Bonus Program (the "Bonus Program") of Ohio Valley Banc Corp. (the “Company”) provided pursuant to Item 601(b)(10)(iii) of Regulation S-K promulgated by the Securities and Exchange Commission, which requires a written description of a compensatory plan when no formal document contains the compensation information.

The executive officers of the Company receive no compensation from the Company. Instead they are paid by subsidiaries for services rendered in their capacities as executive officers of subsidiaries of the Company.

The objectives of the bonus component of the Company's compensation program are to: (a) motivate executive officers and other employees and reward such persons for the accomplishment of both annual and long range goals of the Company and its subsidiaries, (b) reinforce a strong performance orientation with differentiation and variability in individual awards based on contribution to long-range business results and (c) provide a fully competitive compensation package that will attract, reward, and retain individuals of the highest quality. Typically, all employees of the Company's subsidiaries holding positions with a pay grade of 9 or above, as well as some employees who were graded 9 or above before the redesign of the salary structure, are eligible to participate in the bonus program, including all of the named executive officers. Bonuses payable to participants in the bonus program are based on (a) the performance of the Company and its subsidiaries as measured against specific performance targets; and (b) each employee's individual performance. At the beginning of each fiscal year, the Compensation Committee sets specific performance targets for the Company and its subsidiaries based on a combination of some or all of a number of performance criteria. The targets are based on one or more of the following performance criteria: net income, net income per share, return on assets, return on equity, asset quality (as measured by the ratio of adversely classified assets to tier 1 capital plus the ALLL), tier 1 leverage ratio and efficiency ratio. It is the objective of the Compensation Committee to establish goals that are “reaching” but “reachable.” The Compensation Committee may not consider the goals to be of equal weight, but, in the aggregate, it considers them to be fundamental metrics which are important to the long-term performance of the Company and which, at the same time, do not expose the Company to, nor incent the employees to undertake, excessive risks which would threaten the Company’s long-term value. At the end of the fiscal year, the aggregate amount available for the payment of a bonus, if any, is determined by the Company’s Board of Directors upon recommendation of its Compensation Committee based on an evaluation of the accomplishment of the performance targets. A bonus may be paid without targets having been established or achieved. No officer or employee has any right to the payment of a bonus until the Board of Directors has exercised its discretion to award one and the amount to be paid to each person has been determined and announced.

Once the aggregate amount of the bonus pool is determined, individual bonus awards, for eligible employees in grades 11 and below, are typically determined through a formula that applies each employee's performance evaluation score to a “bonus grid,” reflecting the individual employee's job grade and individual job performance using the performance criteria referenced above. For employees in grades 12 and above, individual bonus awards are determined by the level of achievement by the Company and its subsidiaries of some or all of a number of previously mentioned performance metrics. Upon the recommendation of the Compensation Committee and if approved by the Board, individual bonus awards for grades 12 and above are typically awarded as a percent of base compensation. Employees are evaluated by their supervisors, except for Messrs. Wiseman and Miller, who are evaluated by the Compensation Committee. The Company’s Board of Directors approves the bonuses payable to the executive officers under the Bonus Program based upon the recommendation of the Compensation Committee.

Bonuses are normally paid in February in cash in a single lump sum, subject to payroll taxes and tax withholdings.

EXHIBIT 10.19

The following form of agreement was executed by The Ohio Valley Bank Company and each of the following directors on the dates indicated beside their names:

Name	Date of Agreement
David W. Thomas	December 20, 2016
Harold A. Howe	December 13, 2016
Thomas E. Wiseman	December 13, 2016

2016 DETERMINATION OF DIRECTOR’S FEES

FOR PURPOSES OF THE DIRECTOR RETIREMENT AGREEMENT

FOR _____________

THIS AGREEMENT is made this ______ day of December, 2016, by and between THE OHIO VALLEY BANK COMPANY located in Gallipolis, Ohio (the “Company”), and ______________ (the “Director”).

The Company and the Director entered into a DIRECTOR RETIREMENT AGREEMENT most recently amended and restated on ____________________, 20__ (the “Agreement”).

The Director agrees that Director’s “total annual or monthly fees” for purposes of sections 2.1.1 Normal Retirement Benefit, 2.2.1 Disability Benefit, and 3.1.1 Death During Active Service will include the annual board retainer and monthly fees paid to all directors, earned by the Director during a Plan Year and will not include committee fees of any type, lead director fees or other special director fees.

The parties, by executing this Agreement hereby agree to the terms stated herein.

DIRECTOR:	THE OHIO VALLEY BANK COMPANY
	By:
	Title:
OVBC
---
ANNUAL REPORT
2020

[Picture of Rio Grande Office]

Honoring 50 years in Rio Grande

A note about the cover: Throughout much of this report you will see how your company faced the challenges of the COVID-19 global pandemic that changed everything. There is no doubt that when we mark this year in history, the pandemic will always be front and center. However, it should also be noted that there were other things that happened in 2020. Fantastic things. Positive milestones and achievements that deserved not to be swept aside and forgotten. And for this reason, we chose to adorn this year’s cover not with masks, but with a celebration. Help us in congratulating the community bankers at OVB Rio Grande on the 50th anniversary of Ohio Valley Bank’s first branch.

[Picture]

Remote workstation technology was set up for 71 employees in just two weeks, securing the continuancy of financial services for our communities. Pictured in mask is Chairman Wiseman; on screen is President Miller.

Message from Management

Dear Neighbors and Friends,

Before the 2020 pandemic, the CDC notes the Flu Pandemic of 1918 as the most severe in recent history. OVB survived that one too.

We have always attributed the bank’s longevity to the loyal support of our community. We returned that support with interest during this pandemic.

When we had to close Ohio Valley Bank lobbies, we extended drive-thru hours and invested over $170,000 in advancing contactless banking services. When the IRS sent over 3,000 stimulus checks to Loan Central instead of to the people, we didn’t just send them back to the IRS as our competitors did. We got each one to its rightful owner. When gatherings of more than ten were banned, we secured the means to hold the first virtual Annual Meeting in the company’s history. When the big banks used their might to try to scoop up all the Paycheck Protection Program (PPP) funding, we worked through the nights and weekends to secure over $35 million for our local businesses.

Ohio Valley Bank and Loan Central did not lay off any workers or permanently close any offices. As a matter of fact, it was all hands on deck as we accelerated technology projects, put in overtime, sought opportunities for expansion, and worked to be there for our communities in new ways.

And though we were able to keep business as usual for the most part, special honors had to be delayed. Milestones like the completion of OVB on the Square and the retirement celebration for the distinguished career of former Chairman Jeff Smith were put on hold. We do still plan to celebrate both when Governor DeWine lifts gathering restrictions.

Another event you can count on, though it will be a virtual event, is our 2021 Annual Shareholders Meeting. Plan to join us online May 19th at 3:00 p.m. Have your control number, found with your voting information, ready when you log in. We plan to return to the Ariel Theatre in 2022. Until then, know that your teams here at Ohio Valley Banc Corp. deeply appreciate your ongoing support and will continue working to pay it forward to the communities we share.

Sincerely,

Thomas E. Wiseman

Chairman of the Board & CEO

Ohio Valley Banc Corp.

Larry E. Miller, II

President & Chief Operating Officer

Ohio Valley Banc Corp.

[Picture]

Hometown commercial loan officers like Shelly Boothe and Pat Tackett worked into the wee hours of the morning for several days to secure PPP funding for local businesses.

With lobbies closed for much of 2020, contactless banking channels such as mobile banking, ATMs, and drive-thru windows took center stage. With a robust technology infrastructure already in place, Ohio Valley Bank was well prepared for the challenges of the year.

OVB’s ATM network includes 35 locally installed machines and customer surcharge-free access to more than 37,000 through the MoneyPass network. The added convenience of drive-thru ATMs at 12 locations, made banking even easier.

Ohio Valley Bank introduced a major upgrade to its OVB Line telephone banking in May. The project was in progress before the pandemic, but couldn’t come at a better time. The improved OVB Line fielded over 10,000 calls in its first month, answering customer needs on the first ring.

Users flocked to NetTeller internet banking and the OVB Mobile App each month. More than 2,000 customers discovered the ease of mobile banking for the first time in 2020. Text Message Banking received a record 35,358 requests for balances and history.

These electronic channels provided access 24/7 during the unprecedented crisis, but they could never replace the special touch of our hometown community bankers. These remarkable folks found ways to work with safety protocols to continue to provide unmatched service, as proven by the more than 450,000 estimated transactions conducted at OVB drive-thru windows during the year and outreach in the form of six-months of deferred loan payments, waived early closeout fees for Christmas Savings accounts, and financial support for charities committed to helping our communities.

2020 by the numbers

$35,000,000

In 100% forgiveable loans secured by OVB for businesses through the SBA.

$10,649,306.02

Deposited using a cell phone or tablet on the go.

Over a million in the month of December alone!

225,566

Statements and notices contactlessly delivered by OVB eDelivery.

116,640

Online bill payments sent by customers.

678,320

Safe and secure transactions at the ATM.

214,553

People shopped for their next vehicle at the online OVB Auto Loan Center.

77,903

Calls answered by OVB Line telephone banking, assisting customers with

transfers, loan payments, debit card activation and more.

$172,000,000

Increase in total deposits at December 31 over the prior year.

[Picture]

Our employees found many ways to work with pandemic restrictions and still be there for our communities who needed us.

Above: Community bankers Maranda Prevatt, Rachel Stevens, and Leigh Anne Roten have a little fun during a clean sweep of the high touch areas at the Barboursville Office lobby.

Right Page Top Row Left: In March, several improvements were made to the Waverly Office including new concrete and lights for the exterior. Middle: 2020 OVB 4-H Scholar Olivia Harrison with OVB’s Larry Miller and Tom Wiseman. Special thanks to the Gallia Co. 4-H Advisors for allowing us to present this honor during their awards when COVID restrictions cancelled the event where we usually bestow the honor. Right: Larry Miller presents a donation to God’s Hands at Work to help them provide winter heating bill assistance for those financially burdened by the pandemic.

Right Page Middle Row Left: “Penny Bandit”, OVB Jackson’s entry in this year’s Farm Bureau Hog Wild fundraiser made the Top 15 in donations raised. Outfitted in a custom made mask, she was hard to resist. Middle: Community Banker Alex White shines up the drive- thru window at OVB Rio Grande as they prepare for another day of contactless banking. Right: President and Chief Operating Officer Larry Miller delivered a Merry Christmas message to all from the rooftop patio at OVB on the Square overlooking the OVB Tree at Gallipolis in Lights. OVB on the Square participated in the event for the first time with lighted window displays, rooftop lights, and red and green spotlights at the base of each of the building’s massive windows.

Right Page Bottom Row Left: In July, community banker Crystal Ramey was excited to welcome customers back into the OVB Milton bank lobby. Like all OVB branches, Milton is equipped with safety barriers and social distancing markers for the continued health of our customers. Middle: OVBC Chairman Tom Wiseman personally delivers the bank’s donation of 10,000 masks to Holzer Health for frontline healthcare workers in need of PPE. Right: Though the bank’s Veteran’s Action Committee (VAC) was unable to hold their annual Ruck Walk fundraiser, they still raised $2,400 for local veterans organizations, largely through the Community First Debit Card program’s veterans designs. Pictured are Tom Wiseman and VAC Chair Johnnie Wamsley presenting the donations to representatives from the American Legion Post 23 in Point Pleasant, Gallia/Meigs/Mason Marine Corps League Detachment 1180, and the Gallipolis VFW.

[ Pictures Only]

OVBC DIRECTORS Thomas E. Wiseman Chairman and Chief Executive Officer, Ohio Valley Banc Corp. and Ohio Valley Bank Larry E. Miller, II President & Chief Operating Officer, Ohio Valley Banc Corp. and Ohio Valley Bank David W. Thomas, Lead Director Former Chief Examiner, Ohio Division of Financial Institutions bank supervision and regulation Anna P. Barnitz Treasurer & CFO, Bob’s Market & Greenhouses, Inc. wholesale horticultural products and retail landscaping stores Brent A. Saunders Chairman of the Board, Holzer Health System Attorney, Halliday, Sheets & Saunders healthcare Harold A. Howe Self-employed, Real Estate Investment and Rental Property Brent R. Eastman President and Co-owner, Ohio Valley Supermarkets Partner, Eastman Enterprises Kimberly A. Canady Owner, Canady Farms, LLC agricultural products and agronomy services Edward J. Robbins President & CEO, Ohio Valley Veneer, Inc. wood harvesting, processing and manufacturing of dry lumber & flooring in Ohio, Kentucky, and Tennessee OHIO VALLEY BANK DIRECTORS Thomas E. Wiseman Brent R. Eastmam DavidW. Thomas K imberly A. Canady Harold A. Howe Edward J. Robbins Anna P. Barnitz Larry E. Miller, II Brent A. Saunders

OVBC OFFICERS Thomas E. Wiseman, Chairman and Chief Executive Officer Larry E. Miller, II, President & Chief Operating Officer Scott W. Shockey, Senior Vice President & Chief Financial Officer Tommy R. Shepherd, Senior Vice President & Secretary Bryan F. Stepp, Senior Vice President - Lending/Credit Mario P. Liberatore, Vice President Cherie A. Elliott, Vice President Frank W. Davison, Vice President Ryan J. Jones, Vice President Allen W. Elliott, Vice President Shawn R. Siders, Vice President Bryna S. Butler, Vice President Marilyn G. Kearns, Vice President Paula W. Clay, Assistant Secretary Cindy H. Johnston, Assistant Secretary LOAN CENTRAL DIRECTORS Larry E. Miller, II Cherie A. Elliott Ryan J. Jones LOAN CENTRAL OFFICERS Larry E. Miller, II Chairman of the Board Cherie A. Elliott President Timothy R. Brumfield Vice President & Secretary Manager, Gallipolis Office John J. Holtzapfel Compliance Officer & Manager, Wheelersburg Office T. Joe Wilson Manager, Waverly Office Joseph I. Jones Manager, South Point Office Gregory G. Kauffman Manager, Chillicothe Office Steven B. Leach Manager, Jackson Office WEST VIRGINIA ADVISORY BOARD Mario P. Liberatore E. Allen Bell Richard L. Handley John A. Myers Stephen L. Johnson DIRECTORS EMERITUS W. Lowell Call Barney A. Molnar Steven B. Chapman Jeffrey E. Smith Robert E. Daniel Wendell B. Thomas John G. Jones Lannes C. Williamson

OHIO VALLEY BANK OFFICERS <br> <br><br><br> <br>EXECUTIVE OFFICERS<br><br> <br>Thomas E. Wiseman<br><br> <br>Larry E. Miller, II<br><br> <br>Scott W. Shockey<br><br> <br>Tommy R. Shepherd<br><br> <br>Bryan F. Stepp<br><br> <br>Mario P. Liberatore<br><br> <br><br><br> <br>SENIOR VICE PRESIDENTS<br><br> <br>FrankW.Davison<br><br> <br>Ryan J.Jones<br><br> <br>Allen W.Elliott<br><br> <br>Shawn R. Siders<br><br> <br>Bryna S. Butler<br><br> <br>Marilyn G. Kearns<br><br> <br><br><br> <br>VICE PRESIDENTS<br><br> <br>Patrick H. Tackett<br><br> <br>Rick A. Swain<br><br> <br>Tamela D. LeMaster<br><br> <br>Christopher L. Preston<br><br> <br>Gregory A. Phillips<br><br> <br>Diana L. Parks<br><br> <br>John A. Anderson<br><br> <br>Kyla R. Carpenter<br><br> <br>E. Kate Cox<br><br> <br>Brian E. Hall<br><br> <br>Daniel T. Roush<br><br> <br>Adam D. Massie<br><br> <br>Jay D. Miller<br><br> <br>Jody M. DeWees<br><br> <br>Christopher S. Petro<br><br> <br>Benjamin F. Pewitt<br><br> <br>Lori A. Edwards<br><br> <br>Brandon O. Huff<br><br> <br><br><br> <br>ASSISTANT VICE PRESIDENTS<br><br> <br>Melissa P. Wooten<br><br> <br>Kimberly R. Williams<br><br> <br>Paula W. Clay<br><br> <br>Cindy H. Johnston<br><br> <br>Joe J. Wyant<br><br> <br>Brenda G. Henson<br><br> <br>Barbara A. Patrick<br><br> <br>Richard P. Speirs<br><br> <br>Raymond G. Polcyn<br><br> <br>Anita M. Good<br><br> <br>Angela S. Kinnaird<br><br> <br>Terri M. Camden<br><br> <br>Shelly N. Boothe<br><br> <br>Stephenie L. Peck	Chairman and Chief Executive Officer<br><br> <br>President and Chief Operating Officer<br><br> <br>Executive Vice President, Chief Financial Officer<br><br> <br>Executive Vice President and Secretary<br><br> <br>Executive Vice President,Lending/Credit<br><br> <br>President, OVB West Virginia<br><br> <br><br><br> <br><br> <br>Financial Bank Group<br><br> <br>Chief Risk Officer<br><br> <br>Branch Administration<br><br> <br>Chief Credit Officer<br><br> <br>Corporate Communications<br><br> <br>Human Resources<br><br> <br> <br><br><br> <br><br><br> Corporate Banking<br> <br>Western Division Branch Manager<br><br> <br>Branch Administration/CRM<br><br> <br>Business Development West Virginia<br><br> <br>Consumer Lending<br><br> <br>Internal Audit Liaison<br><br> <br>Director of Loan Operations<br><br> <br>Director of Marketing<br><br> <br>Director of Cultural Enhancement<br><br> <br>Corporate Banking<br><br> <br>Senior Compliance Officer<br><br> <br>Northern Region Manager<br><br> <br>Business Development Officer<br><br> <br>Trust<br><br> <br>Comptroller<br><br> <br>Business Development<br><br> <br>Residential Loan Operations Manager<br><br> <br>Director of IT<br><br> <br><br><br> Shareholder Relations Manager & Trust Officer<br><br> <br> <br>Systems Officer<br><br> <br>Assistant Secretary<br><br> <br>Assistant Secretary<br><br> <br>Region Manager Jackson County<br><br> <br>Manager Deposit Services<br><br> <br>BSA Officer/Loss Prevention<br><br> <br>Facilities Manager /Security Officer<br><br> <br>Manager of Buying Department<br><br> <br>Branch Retail Banking Officer<br><br> <br>Customer Support Manager<br><br> <br>Human Resources Officer<br><br> <br>Business Development Officer<br><br> <br>Regional Branch Administrator	OUR<br><br> <br><br><br> <br>VISION is<br><br> <br><br><br> <br>to<br><br> <br><br><br> <br>remain an<br><br> <br><br><br> <br>independent<br><br> <br><br><br> <br>community bank<br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br>ASSISTANT CASHIERS<br><br> <br>Lois J. Scherer EFT Officer<br><br> <br>Glen P. Arrowood, II Manager of Indirect Lending<br><br> <br>Anthony W. Staley Product Development<br><br> <br>Business Sales & Support<br><br> <br>Jon C. Jones Western Cabell Region Manager<br><br> <br>Daniel F. Short Bend Area<br> Region Manager<br><br> <br>Pamela K. Smith Eastern Cabell Region Manager<br><br> <br>William F. Richards Advertising Manager

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Secure the Legacy

Ohio Valley Bank celebrates 150 years in business in 2022. This American institution has survived two World Wars, the Great Depression, the Great Recession, and now two global pandemics.

The company’s continued success lies in large part with our loyal OVBC shareholders who join Ohio Valley Bank and Loan Central in our work to put Community First. Our shareholders reinvested over $1 million of their dividends in Ohio Valley Banc Corp. stock in 2020 through the Dividend Reinvestment Program and Employee Stock Ownership Plan. They didn’t stop there. OVBC shareholders then went on to invest close to $600,000 in supplemental investments in the company. When we pay a dividend and shareholders overwhelmingly choose to invest that money back into the company, we know we are doing something right.

As we look to the future of Ohio Valley Banc Corp., it is important to think about securing the legacy of what our shareholders, customers, and employees have worked so hard to build. As a shareholder, you can help by making plans to pass on shares to heirs who will not just sell them on the open market, but to those who will be dedicated to following your example. Let your family and friends know that you support OVBC and its importance in your life and community. Ensure that your shares will go to those who believe, as you do, in the importance of giving back to our community.

We urge you to make plans now to not only secure the legacy of Ohio Valley Banc Corp., but to secure your role in the continuation of this local success story.

Want to get your family involved now? Did you know that you can transfer ownership of shares at any time without brokerage fees? Gifting shares to a child, grandchild, or anyone you wish is simple. If you are a registered shareholder, contact our Shareholder Relations Department at 800-468-6682 or email investorrelations@ ovbc.com for information.

Thank you for playing a vital role in OVBC’s past, present, and future. We look forward to serving you and your loved ones for many generations to come.

OHIO VALLEY BANC CORP.

ANNUAL REPORT 2020

FINANCIALS

SELECTED FINANCIAL DATA

	Years Ended December 31
	2020			2019			2018			2017			2016
(dollars in thousands, except share and per share data)
SUMMARY OF OPERATIONS:
Total interest income	$	46,173		$	50,317		$	49,197		$	45,708		$	39,348
Total interest expense		6,191			7,265			5,471			3,975			3,022
Net interest income		39,982			43,052			43,726			41,733			36,326
Provision for loan losses		2,980			1,000			1,039			2,564			2,826
Total other income		11,438			9,166			8,938			9,435			8,239
Total other expenses		36,133			39,498			37,426			36,609			32,899
Income before income taxes		12,307			11,720			14,199			11,995			8,840
Income taxes		2,048			1,813			2,255			4,486			1,920
Net income		10,259			9,907			11,944			7,509			6,920
PER SHARE DATA:
Earnings per share	$	2.14		$	2.08		$	2.53		$	1.60		$	1.59
Cash dividends declared per share	$	0.84		$	0.84		$	0.84		$	0.84		$	0.82
Book value per share	$	28.48		$	26.77		$	24.87		$	23.26		$	22.40
Weighted average number of common shares outstanding		4,787,446			4,767,279			4,725,971			4,685,067			4,351,748
AVERAGE BALANCE SUMMARY:
Total loans	$	811,434		$	775,860		$	773,995		$	753,204		$	644,690
Securities^(1)^		205,532			189,187			223,390			193,199			196,389
Deposits		906,315			850,400			886,639			845,227			749,054
Other borrowed funds^(2)^		40,416			45,850			48,967			47,663			39,553
Shareholders’ equity		131,038			122,314			112,393			108,110			98,133
Total assets		1,096,191			1,035,230			1,063,256			1,014,115			899,209
PERIOD END BALANCES:
Total loans	$	848,664		$	772,774		$	777,052		$	769,319		$	734,901
Securities^(1)^		255,662			166,761			184,925			189,941			151,985
Deposits		993,739			821,471			846,704			856,724			790,452
Shareholders’ equity		136,324			128,179			117,874			109,361			104,528
Total assets		1,186,932			1,013,272			1,030,493			1,026,290			954,640
KEY RATIOS:
Return on average assets		.94	%		.96	%		1.12	%		0.74	%		0.77	%
Return on average equity		7.83	%		8.10	%		10.63	%		6.95	%		7.05	%
Dividend payout ratio		39.20	%		40.37	%		33.20	%		52.36	%		51.79	%
Average equity to average assets		11.95	%		11.82	%		10.57	%		10.66	%		10.91	%

(1) Securities include interest-bearing deposits with banks and restricted investments in bank stocks.

(2) Other borrowed funds include subordinated debentures.

consolidated statements of condition


			2019
(dollars in thousands, except share and per share data)
Assets
Cash and noninterest-bearing deposits with banks	14,989		$	12,812
Interest-bearing deposits with banks	123,314			39,544
Total cash and cash equivalents	138,303			52,356
Certificates of deposit in financial institutions	2,500			2,360
Securities available for sale	112,322			105,318
Securities held to maturity (estimated fair value: 2020 - 10,344; 2019 - 12,404)	10,020			12,033
Restricted investments in bank stocks	7,506			7,506
Total loans	848,664			772,774
Less: Allowance for loan losses	(7,160	)		(6,272	)
Net loans	841,504			766,502
Premises and equipment, net	21,312			19,217
Premises and equipment held for sale, net	637			653
Other real estate owned, net	49			540
Accrued interest receivable	3,319			2,564
Goodwill	7,319			7,319
Other intangible assets, net	112			174
Bank owned life insurance and annuity assets	35,999			30,596
Operating lease right-of-use asset, net	880			1,053
Other assets	5,150			5,081
Total assets	1,186,932		$	1,013,272
Liabilities
Noninterest-bearing deposits	314,777		$	222,607
Interest-bearing deposits	678,962			598,864
Total deposits	993,739			821,471
Other borrowed funds	27,863			33,991
Subordinated debentures	8,500			8,500
Operating lease liability	880			1,053
Accrued liabilities	19,626			20,078
Total liabilities	1,050,608			885,093
Commitments and Contingent Liabilities (See Note L)	----			----
Shareholders’ Equity
Common stock (1.00 stated value per share, 10,000,000 shares authorized; 2020 – 5,447,185 shares issued; 2019 - 5,447,185 shares issued)	5,447			5,447
Additional paid-in capital	51,165			51,165
Retained earnings	92,988			86,751
Accumulated other comprehensive income	2,436			528
Treasury stock, at cost (659,739 shares)	(15,712	)		(15,712	)
Total shareholders’ equity	136,324			128,179
Total liabilities and shareholders’ equity	1,186,932		$	1,013,272

All values are in US Dollars.

See accompanying notes to consolidated financial statements

Consolidated Statements of Income

For the years ended December 31	2020			2019			2018
(dollars in thousands, except per share data)
Interest and dividend income:
Loans, including fees	$	43,204		$	45,766		$	44,365
Securities:
Taxable		2,164			2,542			2,377
Tax exempt		286			344			369
Dividends		245			393			440
Interest-bearing deposits with banks		226			1,221			1,608
Other interest		48			51			38
		46,173			50,317			49,197
Interest expense:
Deposits		5,254			6,026			4,155
Other borrowed funds		729			883			986
Subordinated debentures		208			356			330
		6,191			7,265			5,471
Net interest income		39,982			43,052			43,726
Provision for loan losses		2,980			1,000			1,039
Net interest income after provision for loan losses		37,002			42,052			42,687
Noninterest income:
Service charges on deposit accounts		1,685			2,118			2,084
Trust fees		257			264			263
Income from bank owned life insurance and annuity assets		820			704			717
Mortgage banking income		1,254			310			342
Electronic refund check / deposit fees		----			5			1,579
Debit / credit card interchange income		4,031			3,905			3,662
Loss on other real estate owned		(35	)		(65	)		(559	)
Net gain on branch divestitures		----			1,256			----
Tax preparation fees		644			----			----
Litigation settlement		2,000			----			----
Other		782			669			850
		11,438			9,166			8,938
Noninterest expense:
Salaries and employee benefits		21,636			23,524			22,191
Occupancy		1,817			1,771			1,754
Furniture and equipment		1,096			1,060			1,023
Professional fees		1,519			2,508			2,016
Marketing expense		613			841			777
FDIC insurance		165			113			447
Data processing		2,170			1,996			2,115
Software		1,454			1,705			1,533
Foreclosed assets		128			266			238
Amortization of intangibles		62			206			135
Other		5,473			5,508			5,197
		36,133			39,498			37,426
Income before income taxes		12,307			11,720			14,199
Provision for income taxes		2,048			1,813			2,255
NET INCOME	$	10,259		$	9,907		$	11,944
Earnings per share	$	2.14		$	2.08		$	2.53

See accompanying notes to consolidated financial statements

Consolidated Statements of

Comprehensive Income

For the years ended December 31	2020			2019			2018
(dollars in thousands)
NET INCOME	$	10,259		$	9,907		$	11,944
Other comprehensive income (loss):
Change in unrealized gain (loss) on available for sale securities		2,415			3,371			(1,373	)
Related tax (expense) benefit		(507	)		(708	)		289
Total other comprehensive income (loss), net of tax		1,908			2,663			(1,084	)
Total comprehensive income	$	12,167		$	12,570		$	10,860

See accompanying notes to consolidated financial statements

Consolidated Statements of Changes in

Shareholders’ Equity

For the years ended December 31, 2020, 2019, and 2018
(dollars in thousands, except share and per share data)
		Additional<br><br> <br>Paid-In<br><br> <br>Capital		Retained<br><br> <br>Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury<br><br> <br>Stock			Total<br><br> <br>Shareholders' Equity
Balances at January 1, 2018	5,362	$	47,895	$	72,694		$	(878	)	$	(15,712	)	$	109,361
Net income	----		----		11,944			----			----			11,944
Other comprehensive income (loss), net	----		----		----			(1,084	)		----			(1,084	)
Amount reclassified out of accumulated other <br> comprehensive income (loss) per ASU 2018-02	----		----		173			(173	)		----			----
Common stock issued to ESOP, 7,294 shares	7		288		----			----			----			295
Common stock issued through dividend reinvestment,<br> 30,766 shares	31		1,294		----			----			----			1,325
Cash dividends, .84 per share	----		----		(3,967	)		----			----			(3,967	)
Balances at December 31, 2018	5,400		49,477		80,844			(2,135	)		(15,712	)		117,874
Net income	----		----		9,907			----			----			9,907
Other comprehensive income (loss), net	----		----		----			2,663			----			2,663
Common stock issued to ESOP, 8,333 shares	8		320		----			----			----			328
Common stock issued through dividend reinvestment,<br> 38,787 shares	39		1,368		----			----			----			1,407
Cash dividends, .84 per share	----		----		(4,000	)		----			----			(4,000	)
Balances at December 31, 2019	5,447		51,165		86,751			528			(15,712	)		128,179
Net income	----		----		10,259			----			----			10,259
Other comprehensive income (loss), net	----		----		----			1,908			----			1,908
Cash dividends, .84 per share	----		----		(4,022	)		----			----			(4,022	)
Balances at December 31, 2020	5,447	$	51,165	$	92,988		$	2,436		$	(15,712	)	$	136,324

All values are in US Dollars.

See accompanying notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31	2020			2019			2018
(dollars in thousands)
Cash flows from operating activities:
Net income	$	10,259		$	9,907		$	11,944
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		1,341			1,183			1,141
Net (accretion) of purchase accounting adjustments		(42	)		(494	)		(188	)
Net amortization of securities		459			173			260
Proceeds from sale of loans in secondary market		40,158			9,840			11,034
Loans disbursed for sale in secondary market		(38,904	)		(9,530	)		(10,692	)
Amortization of mortgage servicing rights		126			68			55
Impairment of mortgage servicing rights		11			----			----
Gain on sale of loans		(1,391	)		(378	)		(397	)
Amortization of intangible assets		62			206			135
Deferred tax (benefit) expense		12			367			(134	)
Provision for loan losses		2,980			1,000			1,039
Common stock issued to ESOP		----			328			295
Earnings on bank owned life insurance and annuity assets		(820	)		(704	)		(717	)
Loss on sale of other real estate owned		35			57			21
Net write-down of other real estate owned		----			8			538
Net gain on branch divestitures		----			(1,256	)		----
Change in accrued interest receivable		(755	)		74			(135	)
Change in accrued liabilities		(632	)		2,376			1,946
Change in other assets		(408	)		1,528			1,996
Net cash provided by operating activities		12,491			14,753			18,141
Cash flows from investing activities:
Payments related to branch divestitures		----			(26,326	)		----
Proceeds from maturities and paydowns of securities available for sale		36,154			20,199			21,139
Purchases of securities available for sale		(41,162	)		(20,126	)		(23,757	)
Proceeds from calls and maturities of securities held to maturity		2,694			3,754			1,711
Purchases of securities held to maturity		(721	)		----			----
Proceeds from maturities of certificates of deposit in financial institutions		980			----			----
Purchases of certificates of deposit in financial institutions		(1,120	)		(295	)		(245	)
Net change in loans		(78,038	)		2,323			(9,981	)
Proceeds from sale of other real estate owned		548			392			1,132
Purchases of premises and equipment		(3,450	)		(6,232	)		(2,725	)
Disposals of premises and equipment		13			402			----
Purchases of bank owned life insurance and annuity assets		(4,583	)		(500	)		----
Net cash (used in) investing activities		(88,685	)		(26,409	)		(12,726	)
Cash flows from financing activities:
Change in deposits		172,290			1,147			(9,930	)
Proceeds from common stock through dividend reinvestment		----			1,407			1,325
Cash dividends		(4,022	)		(4,000	)		(3,967	)
Proceeds from Federal Home Loan Bank borrowings		----			----			8,000
Repayment of Federal Home Loan Bank borrowings		(5,093	)		(3,676	)		(3,162	)
Change in other long-term borrowings		(405	)		(2,046	)		(989	)
Change in other short-term borrowings		(629	)		----			(85	)
Net cash provided by (used in) by financing activities		162,141			(7,168	)		(8,808	)
Cash and cash equivalents:
Change in cash and cash equivalents		85,947			(18,824	)		(3,393	)
Cash and cash equivalents at beginning of year		52,356			71,180			74,573
Cash and cash equivalents at end of year	$	138,303		$	52,356		$	71,180
Supplemental disclosure:
Cash paid for interest	$	6,681		$	6,931		$	5,008
Cash paid for income taxes		2,050			890			2,050
Transfers from loans to other real estate owned		92			570			547
Initial recognition of operating lease right-of-use asset		----			1,280			----
Operating lease liability arising from obtaining right-of-use asset		----			1,280			----

See accompanying notes to consolidated financial statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Amounts are in thousands, except share and per share data.

Note A - Summary of Significant Accounting Policies

Description of Business: Ohio Valley Banc Corp. (“Ohio Valley”) is a financial holding company registered under the Bank Holding Company Act of 1956. Ohio Valley has one banking subsidiary, The Ohio Valley Bank Company (the “Bank”), an Ohio state-chartered bank that is a member of the Federal Reserve Bank (“FRB”) and is regulated primarily by the Ohio Division of Financial Institutions and the Federal Reserve Board. Ohio Valley also has a subsidiary that engages in consumer lending generally to individuals with higher credit risk history, Loan Central, Inc.; a subsidiary insurance agency that facilitates the receipts of insurance commissions, Ohio Valley Financial Services Agency, LLC; and a limited purpose property and casualty insurance company, OVBC Captive, Inc. The Bank has one wholly-owned subsidiary, Ohio Valley REO, LLC ("Ohio Valley REO"), an Ohio limited liability company, to which the Bank transfers certain real estate acquired by the Bank through foreclosure for sale by Ohio Valley REO. Ohio Valley and its subsidiaries are collectively referred to as the “Company.”

The Company provides a full range of commercial and retail banking services from 21 offices located in southeastern Ohio and western West Virginia. It accepts deposits in checking, savings, time and money market accounts and makes personal, commercial, floor plan, student, construction and real estate loans. Substantially all loans are secured by specific items of collateral, including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from business operations. The Company also offers safe deposit boxes, wire transfers and other standard banking products and services. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). In addition to accepting deposits and making loans, the Bank invests in U. S. Government and agency obligations, interest-bearing deposits in other financial institutions and investments permitted by applicable law.

The Bank’s trust department provides a wide variety of fiduciary services for trusts, estates and benefit plans and also provides investment and security services as an agent for its customers.

Principles of Consolidation: The consolidated financial statements include the accounts of Ohio Valley and its wholly-owned subsidiaries, the Bank, Loan Central, Inc., Ohio Valley Financial Services Agency, LLC, and OVBC Captive, Inc. All material intercompany accounts and transactions have been eliminated.

Industry Segment Information: Internal financial information is primarily reported and aggregated in two lines of business, banking and consumer finance.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the U.S., management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, noninterest-bearing deposits with banks, federal funds sold and interest-bearing deposits with banks with maturity terms of less than 90 days. Generally, federal funds are purchased and sold for one-day periods. The Company reports net cash flows for customer loan transactions, deposit transactions, short-term borrowings and interest-bearing deposits with other financial institutions.

Certificates of deposit in financial institutions: Certificates of deposit in financial institutions are carried at cost and have maturity terms of 90 days or greater. The longest maturity date is May 31, 2023.

Securities: The Company classifies securities into held to maturity and available for sale categories. Held to maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Securities classified as available for sale include securities that could be sold for liquidity, investment management or similar reasons even if there is not a present intention of such a sale. Available for sale securities are reported at fair value, with unrealized gains or losses included in other comprehensive income, net of tax.

Premium amortization is deducted from, and discount accretion is added to, interest income on securities using the level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses are recognized upon the sale of specific identified securities on the completed trade date.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies (continued)

Other-Than-Temporary Impairments of Securities: In determining an other-than-temporary impairment (“OTTI”), management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When an OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Restricted Investments in Bank Stocks: As a member of the Federal Home Loan Bank (“FHLB”) system and the FRB system, the Bank is required to own a certain amount of stock based on its level of borrowings and other factors and may invest in additional amounts. FHLB stock and FRB stock are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. The Company has additional investments in other restricted bank stocks that are not material to the financial statements.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on an accrual basis using the interest method and includes amortization of net deferred loan fees and costs over the loan term using the level yield method without anticipating prepayments. The amount of the Company’s recorded investment is not materially different than the amount of unpaid principal balance for loans.

Interest income is discontinued and the loan moved to non-accrual status when full loan repayment is in doubt, typically when the loan is impaired or payments are past due 90 days or over unless the loan is well-secured or in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days or over and still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Bank also originates long-term, fixed-rate mortgage loans, with full intention of being sold to the secondary market. These loans are considered held for sale during the period of time after the principal has been advanced to the borrower by the Bank, but before the Bank has been reimbursed by the Federal Home Loan Mortgage Corporation, typically within a few business days. Loans sold to the secondary market are carried at the lower of aggregate cost or fair value. As of December 31, 2020, there were $70 in loans held for sale by the Bank, as compared to no loans held for sale at December 31, 2019.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies (continued)

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed.

Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Smaller balance homogeneous loans, such as consumer and most residential real estate, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosure. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and impaired loans that are not individually reviewed for impairment and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 3 years for the consumer and real estate portfolio segment and 5 years for the commercial portfolio segment. The total loan portfolio’s actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: Commercial and Industrial, Commercial Real Estate, Residential Real Estate, and Consumer.

Commercial and industrial loans consist of borrowings for commercial purposes to individuals, corporations, partnerships, sole proprietorships, and other business enterprises. Commercial and industrial loans are generally secured by business assets such as equipment, accounts receivable, inventory, or any other asset excluding real estate and generally made to finance capital expenditures or operations. The Company’s risk exposure is related to deterioration in the value of collateral securing the loan should foreclosure become necessary. Generally, business assets used or produced in operations do not maintain their value upon foreclosure, which may require the Company to write down the value significantly to sell.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies (continued)

Commercial real estate consists of nonfarm, nonresidential loans secured by owner-occupied and nonowner-occupied commercial real estate as well as commercial construction loans. An owner-occupied loan relates to a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing business operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans that are dependent on cash flows from operations can be adversely affected by current market conditions for their product or service. A nonowner-occupied loan is a property loan for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property. Nonowner-occupied loans that are dependent upon rental income are primarily impacted by local economic conditions which dictate occupancy rates and the amount of rent charged. Commercial construction loans consist of borrowings to purchase and develop raw land into 1-4 family residential properties. Construction loans are extended to individuals as well as corporations for the construction of an individual or multiple properties and are secured by raw land and the subsequent improvements. Repayment of the loans to real estate developers is dependent upon the sale of properties to third parties in a timely fashion upon completion. Should there be delays in construction or a downturn in the market for those properties, there may be significant erosion in value which may be absorbed by the Company.

Residential real estate loans consist of loans to individuals for the purchase of 1-4 family primary residences with repayment primarily through wage or other income sources of the individual borrower. The Company’s loss exposure to these loans is dependent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination.

Consumer loans are comprised of loans to individuals secured by automobiles, open-end home equity loans and other loans to individuals for household, family, and other personal expenditures, both secured and unsecured. These loans typically have maturities of 6 years or less with repayment dependent on individual wages and income. The risk of loss on consumer loans is elevated as the collateral securing these loans, if any, rapidly depreciate in value or may be worthless and/or difficult to locate if repossession is necessary. The Company has allocated the highest percentage of its allowance for loan losses as a percentage of loans to the other identified loan portfolio segments due to the larger dollar balances associated with such portfolios.

At December 31, 2020, there were no changes to the accounting policies or methodologies within any of the Company’s loan portfolio segments from the prior period.

Concentrations of Credit Risk: The Company grants residential, consumer and commercial loans to customers located primarily in the southeastern Ohio and western West Virginia areas.

The following represents the composition of the Company’s loan portfolio as of December 31:

	% of Total Loans
	2020			2019
Residential real estate loans		36.00	%		40.15	%
Commercial real estate loans		29.86	%		28.75	%
Consumer loans		15.56	%		18.16	%
Commercial and industrial loans		18.58	%		12.94	%
		100.00	%		100.00	%

Approximately 4.22% of total loans were unsecured at December 31, 2020, down from 5.00% at December 31, 2019.

The Bank, in the normal course of its operations, conducts business with correspondent financial institutions. Balances in correspondent accounts, investments in federal funds, certificates of deposit and other short-term securities are closely monitored to ensure that prudent levels of credit and liquidity risks are maintained. At December 31, 2020, the Bank’s primary correspondent balance was $121,148 on deposit at the FRB, Cleveland, Ohio.

Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation, which is computed using the straight-line method over the estimated useful life of the owned asset and, for leasehold improvement, over the remaining term of the leased facility, whichever is shorter. The useful lives range from 3 to 8 years for equipment, furniture and fixtures and 7 to 39 years for buildings and improvements.

Foreclosed assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed. Foreclosed assets totaled $49 and $540 at December 31, 2020 and 2019.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies (continued)

Goodwill: Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. Goodwill is the only intangible asset with an indefinite life on our balance sheet. The Company has selected December 31 as the date to perform its annual qualitative impairment test. Given that the Company’s stock price had traded below book value for an extended period throughout 2020, management could not conclude using a qualitative assessment that its fair value of goodwill exceeded the carrying amount during the year ended December 31, 2020. Therefore, the Company performed a quantitative impairment test to conclude that there was no goodwill impairment for the year ended December 31, 2020. For the year ended December 31, 2019, the Company used a qualitative assessment based on profitability and positive equity to determine that it was more likely than not that the fair value of goodwill was more than the carrying amount, resulting in no impairment. See Note F for more specific disclosures related to goodwill impairment testing.

Long-term Assets: Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Mortgage Servicing Rights: A mortgage servicing right (“MSR”) is a contractual agreement where the right to service a mortgage loan is sold by the original lender to another party. When the Company sells mortgage loans to the secondary market, it retains the servicing rights to these loans. The Company’s MSR is recognized separately when acquired through sales of loans and is initially recorded at fair value with the income statement effect recorded in mortgage banking income. Subsequently, the MSR is then amortized in proportion to and over the period of estimated future servicing income of the underlying loan. The MSR is then evaluated for impairment periodically based upon the fair value of the rights as compared to the carrying amount, with any impairment being recognized through a valuation allowance. Fair value of the MSR is based on market prices for comparable mortgage servicing contracts. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. At December 31, 2020 and 2019, the Company’s MSR assets were $458 and $357, respectively.

Earnings Per Share:  Earnings per share is based on net income divided by the following weighted average number of common shares outstanding during the periods: 4,787,446 for 2020; 4,767,279 for 2019; 4,725,971 for 2018.  Ohio Valley had no
dilutive effect and no potential common shares issuable under stock options or other agreements for any period presented.

Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized at the time of enactment of such change in tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity, net of tax.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies (continued)

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Bank Owned Life Insurance and Annuity Assets: The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. The Company also purchased an annuity investment for a certain key executive that earns interest.

Employee Stock Ownership Plan: Compensation expense is based on the market price of shares as they are committed to be allocated to participant accounts.

Dividend Reinvestment Plan: The Company maintains a Dividend Reinvestment Plan. The plan enables shareholders to elect to have their cash dividends on all or a portion of shares held automatically reinvested in additional shares of the Company’s common stock. The stock is issued out of the Company’s authorized shares and credited to participant accounts at fair market value. Dividends are reinvested on a quarterly basis.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. These financial instruments are recorded when they are funded. See Note L for more specific disclosure related to loan commitments.

Dividend Restrictions: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to Ohio Valley or by Ohio Valley to its shareholders. See Note P for more specific disclosure related to dividend restrictions.

Restrictions on Cash: Cash on hand or on deposit with a third-party correspondent and the FRB totaled $121,839 at year-end 2020, and was not limited to any regulatory reserve or clearing requirements. Cash on hand or on deposit with a third-party correspondent and the FRB totaled $38,794 at year-end 2019, and was subject to regulatory reserve and clearing requirements. The balances on deposit with a third-party correspondent do not earn interest.

Derivatives: At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”).

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

At December 31, 2020 and 2019, the Company’s only derivatives on hand were interest rate swaps, which are classified as stand-alone derivatives. See Note H for more specific disclosures related to interest rate swaps.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note O. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Reclassifications: The consolidated financial statements for 2019 and 2018 have been reclassified to conform with the presentation for 2020. These reclassifications had no effect on the net results of operations or shareholders’ equity.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies (continued)

Current Events: In March 2020, the World Health Organization declared the outbreak of the coronavirus (“COVID-19”) as a global pandemic. COVID-19 has continued to negatively impact the global economy, disrupt global supply chains, create significant volatility, disrupt financial markets, and increase unemployment levels. The resulting temporary closure of many businesses and the implementation of social distancing and sheltering-in-place policies has impacted, and may continue to impact, many of the Company’s customers.

The continued financial impact of COVID-19 depends largely on the actions taken by governmental authorities and other third parties. In addition, COVID-19 may continue to adversely impact several industries within our geographic footprint for some time and impair the ability of our customers to fulfill their contractual obligations to the Company. This could result in a material adverse effect on our business operations, asset valuations, liquidity, financial condition, and results of operations. Effects may include:

●

Increased provision for loan losses. Continued uncertainty regarding the severity and duration of COVID-19 and related economic effects will continue to affect the accounting for loan losses. It also is possible that asset quality could worsen, and that loan charge-offs could increase. The Company is actively participating in the Paycheck Protection Program (“PPP”) by providing loans to small businesses negatively impacted by COVID-19. PPP loans are fully guaranteed by the U.S. government, and if that should change, the Company could be required to increase its allowance for loan losses through an additional provision for loan losses charged to earnings.

●

Valuation and fair value measurement challenges. Material adverse impacts of COVID-19 may result in valuation impairments on the Company’s securities, impaired loans, goodwill, other real estate owned, and interest rate swap agreements.

---

Adoption of New Accounting Standard Updates (“ASU”): In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial position or results of operations.

In January 2017, the FASB amended ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill. The amendment was to simplify the goodwill impairment measurement test by eliminating Step 2. The amendment requires the Company to perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value. Additionally, an entity should consider the tax effects from any tax deductible goodwill on the carrying amount when measuring the impairment loss. This amendment is effective for public business entities for reporting periods beginning after December 15, 2019, including interim periods within that reporting period. The adoption of this ASU did not have a material impact on the Company’s consolidated financial position or results of operations.

Accounting Guidance to be Adopted in Future Periods: In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses”. ASU 2016-13 requires entities to replace the current “incurred loss” model with an “expected loss” model, which is referred to as the current expected credit loss (“CECL”) model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. A CECL steering committee has developed a CECL model and is evaluating the source data, various credit loss methodologies and model results in relation to the new ASU guidance. Management expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. Management expects the adoption will result in a material increase to the allowance for loan losses balance. At this time, the impact is being evaluated. On October 16, 2019, the FASB confirmed it would delay the effective date of this ASU for smaller reporting companies, such as the Company, until fiscal years beginning after December 15, 2022.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note B - Securities

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at December 31, 2020 and 2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:

	Amortized<br><br> <br>Cost		Gross Unrealized<br><br> <br>Gains		Gross Unrealized<br><br> <br>Losses			Estimated<br><br> <br>Fair Value
Securities Available for Sale
December 31, 2020
U.S. Government sponsored entity securities	$	17,814	$	339	$	----		$	18,153
Agency mortgage-backed securities, residential		91,425		2,748		(4	)		94,169
Total securities	$	109,239	$	3,087	$	(4	)	$	112,322
December 31, 2019
U.S. Government sponsored entity securities	$	16,579	$	163	$	(6	)	$	16,736
Agency mortgage-backed securities, residential		88,071		807		(296	)		88,582
Total securities	$	104,650	$	970	$	(302	)	$	105,318
	Amortized<br><br> <br>Cost		Gross Unrecognized<br><br> <br>Gains		Gross Unrecognized<br><br> <br>Losses			Estimated<br><br> <br>Fair Value
---	---	---	---	---	---	---	---	---	---
Securities Held to Maturity
December 31, 2020
Obligations of states and political subdivisions	$	10,018	$	324	$	----		$	10,342
Agency mortgage-backed securities, residential		2		----		----			2
Total securities	$	10,020	$	324	$	----		$	10,344
December 31, 2019
Obligations of states and political subdivisions	$	12,031	$	372	$	(1	)	$	12,402
Agency mortgage-backed securities, residential		2		----		----			2
Total securities	$	12,033	$	372	$	(1	)	$	12,404

At year-end 2020 and 2019, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

There were no sales of debt securities during 2020, 2019 and 2018.

Securities with a carrying value of approximately $83,344 at December 31, 2020 and $78,418 at December 31, 2019 were pledged to secure public deposits and repurchase agreements and for other purposes as required or permitted by law.

Unrealized losses on the Company’s debt securities have not been recognized into income because the issuers’ securities are of high credit quality as of December 31, 2020, and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery. Management does not believe any individual unrealized loss at December 31, 2020 and 2019 represents an OTTI.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note B - Securities (continued)

The amortized cost and estimated fair value of debt securities at December 31, 2020, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities. Securities not due at a single maturity are shown separately.

	Available for Sale				Held to Maturity
Debt Securities:	Amortized<br><br> <br>Cost		Estimated<br><br> <br>Fair<br><br> <br>Value		Amortized<br><br> <br>Cost		Estimated<br><br> <br>Fair<br><br> <br>Value
Due in one year or less	$	4,599	$	4,612	$	2,016	$	2,048
Due in one to five years		8,215		8,531		4,107		4,276
Due in five to ten years		5,000		5,010		3,895		4,018
Agency mortgage-backed securities, residential		91,425		94,169		2		2
Total debt securities	$	109,239	$	112,322	$	10,020	$	10,344

The following table summarizes securities with unrealized losses at December 31, 2020 and December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position:

December 31, 2020	Less than 12 Months							12 Months or More						Total
Securities Available for Sale	Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss			Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss
Agency mortgage-backed securities, residential		$	14,517		$	(4	)		$	----		$	----		$	14,517		$	(4	)
Total available for sale		$	14,517		$	(4	)		$	----		$	----		$	14,517		$	(4	)
December 31, 2019	Less than 12 Months							12 Months or More							Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Securities Available for Sale	Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss
U.S. Government sponsored entity securities		$	----		$	----			$	1,999		$	(6	)		$	1,999		$	(6	)
Agency mortgage-backed securities, residential			15,041			(84	)			21,344			(212	)			36,385			(296	)
Total available for sale		$	15,041		$	(84	)		$	23,343		$	(218	)		$	38,384		$	(302	)
	Less than 12 Months							12 Months or More						Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Securities Held to Maturity	Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss			Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss
Obligations of states and political subdivisions		$	204		$	(1	)		$	----		$	----		$	204		$	(1	)
Total held to maturity		$	204		$	(1	)		$	----		$	----		$	204		$	(1	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C - Loans and Allowance for Loan Losses

Loans are comprised of the following at December 31:

	2020			2019
Residential real estate	$	305,478		$	310,253
Commercial real estate:
Owner-occupied		51,863			55,825
Nonowner-occupied		164,523			131,398
Construction		37,063			34,913
Commercial and industrial		157,692			100,023
Consumer:
Automobile		55,241			63,770
Home equity		19,993			22,882
Other		56,811			53,710
		848,664			772,774
Less: Allowance for loan losses		(7,160	)		(6,272	)
Loans, net	$	841,504		$	766,502

Commercial and industrial loans include $27,933 of loans originated under the PPP at December 31, 2020. These loans are guaranteed by the SBA.

The following table presents the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2020, 2019 and 2018:

December 31, 2020	Residential<br><br> <br>Real Estate			Commercial<br><br> <br>Real Estate			Commercial<br><br> <br>& Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,250		$	1,928		$	1,447		$	1,647		$	6,272
Provision for loan losses		413			946			443			1,178			2,980
Loans charged off		(340	)		(559	)		(185	)		(1,949	)		(3,033	)
Recoveries		157			116			71			597			941
Total ending allowance balance	$	1,480		$	2,431		$	1,776		$	1,473		$	7,160
December 31, 2019	Residential<br><br> <br>Real Estate			Commercial<br><br> <br>Real Estate			Commercial<br><br> <br>& Industrial			Consumer			Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Allowance for loan losses:
Beginning balance	$	1,583		$	2,186		$	1,063		$	1,896		$	6,728
Provision for loan losses		98			(1,745	)		1,807			840			1,000
Loans charged off		(1,060	)		(602	)		(1,513	)		(1,917	)		(5,092	)
Recoveries		629			2,089			90			828			3,636
Total ending allowance balance	$	1,250		$	1,928		$	1,447		$	1,647		$	6,272
December 31, 2018	Residential<br><br> <br>Real Estate			Commercial<br><br> <br>Real Estate			Commercial<br><br> <br>& Industrial			Consumer			Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Allowance for loan losses:
Beginning balance	$	1,470		$	2,978		$	1,024		$	2,027		$	7,499
Provision for loan losses		772			(1,311	)		(80	)		1,658			1,039
Loans charged off		(874	)		(4	)		(208	)		(2,514	)		(3,600	)
Recoveries		215			523			327			725			1,790
Total ending allowance balance	$	1,583		$	2,186		$	1,063		$	1,896		$	6,728

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C - Loans and Allowance for Loan Losses (continued)

The following table presents the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method as of December 31, 2020 and 2019:

December 31, 2020	Residential<br><br> <br>Real Estate		Commercial<br><br> <br>Real Estate		Commercial<br><br> <br>& Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	----	$	----	$	----	$	----
Collectively evaluated for impairment		1,480		2,431		1,776		1,473		7,160
Total ending allowance balance	$	1,480	$	2,431	$	1,776	$	1,473	$	7,160
Loans:
Loans individually evaluated for impairment	$	411	$	5,845	$	4,686	$	84	$	11,026
Loans collectively evaluated for impairment		305,067		247,604		153,006		131,961		837,638
Total ending loans balance	$	305,478	$	253,449	$	157,692	$	132,045	$	848,664
December 31, 2019	Residential<br><br> <br>Real Estate		Commercial<br><br> <br>Real Estate		Commercial<br><br> <br>& Industrial		Consumer		Total
---	---	---	---	---	---	---	---	---	---	---
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	385	$	303	$	119	$	807
Collectively evaluated for impairment		1,250		1,543		1,144		1,528		5,465
Total ending allowance balance	$	1,250	$	1,928	$	1,447	$	1,647	$	6,272
Loans:
Loans individually evaluated for impairment	$	438	$	11,300	$	4,910	$	487	$	17,135
Loans collectively evaluated for impairment		309,815		210,836		95,113		139,875		755,639
Total ending loans balance	$	310,253	$	222,136	$	100,023	$	140,362	$	772,774

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C – Loans and Allowance for Loan Losses (continued)

The following table presents information related to loans individually evaluated for impairment by class of loans as of the years ended December 31, 2020, 2019 and 2018:

December 31, 2020	Unpaid<br><br> <br>Principal<br><br> <br>Balance		Recorded<br><br> <br>Investment		Allowance for<br><br> <br>Loan Losses<br><br> <br>Allocated		Average<br><br> <br>Impaired<br><br> <br>Loans		Interest<br><br> <br>Income<br><br> <br>Recognized		Cash Basis<br><br> <br>Interest<br><br> <br>Recognized
With an allowance recorded:	$	----	$	----	$	----	$	----	$	----	$	----
With no related allowance recorded:
Residential real estate		418		411		----		423		21		21
Commercial real estate:
Owner-occupied		5,256		5,256		----		3,417		260		260
Nonowner-occupied		632		589		----		626		29		29
Commercial and industrial		4,686		4,686		----		3,772		196		196
Consumer:
Home equity		34		34		----		28		2		2
Other		50		50		----		10		2		2
Total	$	11,076	$	11,026	$	----	$	8,276	$	510	$	510
December 31, 2019	Unpaid<br><br> <br>Principal<br><br> <br>Balance		Recorded<br><br> <br>Investment		Allowance for<br><br> <br>Loan Losses<br><br> <br>Allocated		Average<br><br> <br>Impaired<br><br> <br>Loans		Interest<br><br> <br>Income<br><br> <br>Recognized		Cash Basis<br><br> <br>Interest<br><br> <br>Recognized
---	---	---	---	---	---	---	---	---	---	---	---	---
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	2,030	$	2,030	$	385	$	1,375	$	197	$	197
Commercial and industrial		4,861		4,861		303		4,796		319		319
Consumer:
Automobile		8		8		8		2		----		----
Other		111		111		111		22		9		9
With no related allowance recorded:
Residential real estate		438		438		----		453		23		23
Commercial real estate:
Owner-occupied		1,778		1,778		----		1,902		113		113
Nonowner-occupied		7,492		7,492		----		6,160		477		477
Commercial and industrial		49		49		----		300		111		111
Consumer:
Home equity		368		368		----		143		19		19
Total	$	17,135	$	17,135	$	807	$	15,153	$	1,268	$	1,268

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C – Loans and Allowance for Loan Losses (continued)

December 31, 2018	Unpaid<br><br> <br>Principal<br><br> <br>Balance		Recorded<br><br> <br>Investment		Allowance for<br><br> <br>Loan Losses<br><br> <br>Allocated		Average<br><br> <br>Impaired<br><br> <br>Loans		Interest<br><br> <br>Income<br><br> <br>Recognized		Cash Basis<br><br> <br>Interest<br><br> <br>Recognized
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	362	$	362	$	98	$	367	$	15	$	15
With no related allowance recorded:
Residential real estate		1,667		1,667		----		511		101		101
Commercial real estate:
Owner-occupied		2,527		2,527		----		2,475		141		141
Nonowner-occupied		2,368		946		----		1,912		57		57
Construction		336		----		----		----		20		20
Commercial and industrial		7,116		7,116		----		5,802		414		414
Total	$	14,376	$	12,618	$	98	$	11,067	$	748	$	748

The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees.

Nonaccrual loans and loans past due 90 days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans.

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of December 31, 2020 and December 31, 2019, other real estate owned for residential real estate properties totaled $43 and $68, respectively. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $1,097 and $1,780 as of December 31, 2020 and December 31, 2019, respectively.

The following table presents the recorded investment of nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of December 31, 2020 and 2019:

	Loans Past Due 90 Days<br><br> <br>And Still Accruing		Nonaccrual
December 31, 2020
Residential real estate	$	127	$	5,256
Commercial real estate:
Owner-occupied		----		205
Nonowner-occupied		----		362
Construction		----		156
Commercial and industrial		15		149
Consumer:
Automobile		146		129
Home equity		----		210
Other		136		36
Total	$	424	$	6,503

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C – Loans and Allowance for Loan Losses (continued)

	Loans Past Due 90 Days<br><br> <br>And Still Accruing		Nonaccrual
December 31, 2019
Residential real estate	$	255	$	6,119
Commercial real estate:
Owner-occupied		----		863
Nonowner-occupied		----		804
Construction		----		229
Commercial and industrial		----		590
Consumer:
Automobile		239		61
Home equity		----		392
Other		395		91
Total	$	889	$	9,149

The following table presents the aging of the recorded investment of past due loans by class of loans as of December 31, 2020 and 2019:

December 31, 2020	30-59<br><br> <br>Days<br><br> <br>Past Due		60-89<br><br> <br>Days<br><br> <br>Past Due		90 Days<br><br> <br>Or More<br><br> <br>Past Due		Total<br><br> <br>Past Due		Loans Not<br><br> <br>Past Due		Total
Residential real estate	$	2,845	$	496	$	1,663	$	5,004	$	300,474	$	305,478
Commercial real estate:
Owner-occupied		470		1003		193		1,666		50,197		51,863
Nonowner-occupied		94		----		362		456		164,067		164,523
Construction		----		82		----		82		36,981		37,063
Commercial and industrial		1,112		11		164		1,287		156,405		157,692
Consumer:
Automobile		831		131		258		1,220		54,021		55,241
Home equity		204		81		113		398		19,595		19,993
Other		446		76		172		694		56,117		56,811
Total	$	6,002	$	1,880	$	2,925	$	10,807	$	837,857	$	848,664
December 31, 2019	30-59<br><br> <br>Days<br><br> <br>Past Due		60-89<br><br> <br>Days<br><br> <br>Past Due		90 Days<br><br> <br>Or More<br><br> <br>Past Due		Total<br><br> <br>Past Due		Loans Not<br><br> <br>Past Due		Total
---	---	---	---	---	---	---	---	---	---	---	---	---
Residential real estate	$	4,015	$	1,314	$	1,782	$	7,111	$	303,142	$	310,253
Commercial real estate:
Owner-occupied		383		59		144		586		55,239		55,825
Nonowner-occupied		12		----		697		709		130,689		131,398
Construction		186		19		49		254		34,659		34,913
Commercial and industrial		1,320		312		241		1,873		98,150		100,023
Consumer:
Automobile		986		329		246		1,561		62,209		63,770
Home equity		106		18		279		403		22,479		22,882
Other		559		139		443		1,141		52,569		53,710
Total	$	7,567	$	2,190	$	3,881	$	13,638	$	759,136	$	772,774

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C – Loans and Allowance for Loan Losses (continued)

Troubled Debt Restructurings:

A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. All TDRs are considered to be impaired. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms.

The Company has allocated reserves for a portion of its TDRs to reflect the fair values of the underlying collateral or the present value of the concessionary terms granted to the customer.

The following table presents the types of TDR loan modifications by class of loans as of December 31, 2020 and December 31, 2019:

	TDRs<br><br> <br>Performing to<br><br> <br>Modified Terms		TDRs Not<br><br> <br>Performing to<br><br> <br>Modified Terms		Total<br><br> <br>TDRs
December 31, 2020
Residential real estate:
Interest only payments	$	202	$	----	$	202
Commercial real estate:
Owner-occupied
Reduction of principal and interest payments		1,486		----		1,486
Maturity extension at lower stated rate than market rate		351		----		351
Credit extension at lower stated rate than market rate		384		----		384
Nonowner-occupied
Credit extension at lower stated rate than market rate		390		----		390
Commercial and industrial
Interest only payments		4,400		----		4,400
Total TDRs	$	7,213	$	----	$	7,213
	TDRs<br><br> <br>Performing to<br><br> <br>Modified Terms		TDRs Not<br><br> <br>Performing to<br><br> <br>Modified Terms		Total<br><br> <br>TDRs
---	---	---	---	---	---	---
December 31, 2019
Residential real estate:
Interest only payments	$	209	$	----	$	209
Commercial real estate:
Owner-occupied
Interest only payments		882		----		882
Reduction of principal and interest payments		1,521		----		1,521
Maturity extension at lower stated rate than market rate		393		----		393
Credit extension at lower stated rate than market rate		393		----		393
Nonowner-occupied
Credit extension at lower stated rate than market rate		395		----		395
Commercial and industrial
Interest only payments		4,574		----		4,574
Reduction of principal and interest payments		185		----		185
Total TDRs	$	8,552	$	----	$	8,552

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C – Loans and Allowance for Loan Losses (continued)

At December 31, 2020, the balance in TDR loans decreased $1,339, or 15.7%, from year-end 2019. The Company had no specific allocations in reserves to customers whose loan terms have been modified in TDRs at December 31, 2020, as compared to $227 at December 31, 2019. At December 31, 2020, the Company had $1,100 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs, as compared to $941 at December 31, 2019.

There were no TDR loan modifications that occurred during the years ended December 31, 2020 and December 31, 2018. The following table present the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the year ended December 31, 2019:

			TDRs<br><br> <br>Performing to Modified Terms				TDRs Not<br><br> <br>Performing to Modified Terms
	Number<br><br> <br>of<br><br> <br>Loans		Pre-Modification<br><br> <br>Recorded<br><br> <br>Investment		Post-Modification<br><br> <br>Recorded<br><br> <br>Investment		Pre-Modification<br><br> <br>Recorded<br><br> <br>Investment		Post-Modification<br><br> <br>Recorded<br><br> <br>Investment
December 31, 2019
Commercial real estate:
Owner-occupied
Reduction of principal and interest payments		1	$	1,036	$	1,036	$	----	$	----
Commercial and industrial:
Reduction of principal and interest payments		1		199		199		----		----
Total TDRs		2	$	1,235	$	1,235	$	----	$	----

The TDRs described above increased the provision expense and the allowance for loan losses by $185 during the year ended December 31, 2019, with no corresponding charge-offs.

The Company had no TDRs that occurred during the year ended December 31, 2020 and December 31, 2019 that experienced any payment defaults within twelve months following their loan modification. During the twelve months ended December 31, 2018, a commercial real estate TDR totaling $362 became past due 90 days or more. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. TDR loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 and provided guidance on the modification of loans as a result of COVID-19, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at December 31, 2019, or at the time a modification program is implemented, respectively. During the year ended December 31, 2020, the Company had modified 827 loans related to COVID-19 with an aggregate loan balance of $153,263 at December 31, 2020 that were not reported as TDRs. As of December 31, 2020, the Company had 116 modified loans remaining that were related to COVID-19 with an aggregate loan balance of $7,287 that were not reported as TDRs in the tables presented above.

The terms of certain other loans were modified during the years ended December 31, 2020 and 2019 that did not meet the definition of a TDR. These loans have a total recorded investment of $57,893 as of December 31, 2020 and $50,586 as of December 31, 2019. The modification of these loans primarily involved the modification of the terms of a loan to borrowers who were not experiencing financial difficulties.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C - Loans and Allowance for Loan Losses (continued)

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale from 1 through 11. The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded 8 and its classified assets to be loans that are graded 9 through 11. The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed $1,000.

The Company uses the following definitions for its criticized loan risk ratings:

Special Mention. Loans classified as special mention indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are not classified and do not expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy may be necessary to correct the deficiencies. These loans are considered bankable assets with no apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. Credits that are defined as a troubled debt restructuring should be graded no higher than special mention until they have been reported as performing over one year after restructuring.

The Company uses the following definitions for its classified loan risk ratings:

Substandard. Loans classified as substandard represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of one or more well defined weaknesses and the collateral pledged may inadequately protect collection of the loans. Loss of principal is not likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loan grade 8 loans. Collateral liquidation is considered likely to satisfy debt.

Doubtful. Loans classified as doubtful display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors which may strengthen the credit can be more accurately determined. These factors may include proposed acquisitions, liquidation procedures, capital injection, and receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard.

Loss. Loans classified as loss are considered uncollectible and are of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery may be affected in the future. Amounts classified as loss should be promptly charged off.

Criticized and classified loans will mostly consist of commercial and industrial and commercial real estate loans. The Company considers its loans that do not meet the criteria for a criticized and classified asset rating as pass rated loans, which will include loans graded from 1 (Prime) to 7 (Watch). All commercial loans are categorized into a risk category either at the time of origination or re-evaluation date.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note C - Loans and Allowance for Loan Losses (continued)

As of December 31, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of commercial loans by class of loans is as follows:

December 31, 2020	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	46,604	$	669	$	4,590	$	51,863
Nonowner-occupied		160,324		3,629		570		164,523
Construction		37,063		----		----		37,063
Commercial and industrial		150,786		2,064		4,842		157,692
Total	$	394,777	$	6,362	$	10,002	$	411,141
December 31, 2019	Pass		Criticized		Classified		Total
---	---	---	---	---	---	---	---	---
Commercial real estate:
Owner-occupied	$	49,486	$	2,889	$	3,450	$	55,825
Nonowner-occupied		123,847		----		7,551		131,398
Construction		34,864		----		49		34,913
Commercial and industrial		89,749		298		9,976		100,023
Total	$	297,946	$	3,187	$	21,026	$	322,159

The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau) but not thereafter. The Company focuses mostly on the performance and repayment ability of the borrower as an indicator of credit risk and does not consider a borrower’s credit score to be a significant influence in the determination of a loan’s credit risk grading.

For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on payment activity as of December 31, 2020 and December 31, 2019:

	Consumer
December 31, 2020	Automobile			Home Equity			Other			Residential<br><br> <br>Real Estate			Total
Performing		$	54,966		$	19,783		$	56,639		$	300,095		$	431,483
Nonperforming			275			210			172			5,383			6,040
Total		$	55,241		$	19,993		$	56,811		$	305,478		$	437,523
	Consumer
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
December 31, 2019	Automobile			Home Equity			Other			Residential<br><br> <br>Real Estate			Total
Performing		$	63,470		$	22,490		$	53,224		$	303,879		$	443,063
Nonperforming			300			392			486			6,374			7,552
Total		$	63,770		$	22,882		$	53,710		$	310,253		$	450,615

The Company, through its subsidiaries, grants residential, consumer, and commercial loans to customers located primarily in the southeastern area of Ohio as well as the western counties of West Virginia. Approximately 4.22% of total loans were unsecured at December 31, 2020, down from 5.00% at December 31, 2019.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note D - Premises and Equipment

Following is a summary of premises and equipment at December 31:

	2020		2019
Land	$	2,719	$	2,633
Buildings		22,081		20,890
Leasehold improvements		1,302		1,267
Furniture and equipment		8,892		6,847
		34,994		31,637
Less accumulated depreciation		13,682		12,420
Total premises and equipment	$	21,312	$	19,217

Following is a summary of premises and equipment held for sale at December 31:

	2020		2019
Land	$	153	$	153
Buildings		564		563
		717		716
Less accumulated depreciation		80		63
Total premises and equipment held for sale	$	637	$	653

Note E – Leases

The Company enters into leases in the normal course of business primarily for branch buildings and office space to conduct business. The Company’s leases have remaining terms ranging from 9 months to 16.5 years, some of which include options to extend the leases for up to 15 years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected to not recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. At December 31, 2020, the Company did not have any finance leases.

The Company’s operating lease ROU assets and operating lease liabilities are valued based on the present value of future minimum lease payments, discounted with an incremental borrowing rate for the same term as the underlying lease. The Company has one lease arrangement that contains variable lease payments that are adjusted periodically for an index. Upon adoption of the new lease guidance on January 1, 2019, an initial ROU asset of $1,280 was recognized as a non-cash asset addition to the consolidated balance sheet.

Balance sheet information related to leases was as follows:

	December 31, 2020		December 31, 2019
Operating leases:
Operating lease right-of-use assets	$	880	$	1,053
Operating lease liabilities		880		1,053

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note E – Leases (continued)

The components of lease cost were as follows for the year ending:

	December 31, 2020		December 31, 2019
Operating lease cost	$	170	$	282
Short-term lease expense		31		52

Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2020 are as follows:

	Operating Leases
2021	$	157
2022		157
2023		116
2024		95
2025		94
Thereafter		452
Total lease payments		1,071
Less: Imputed Interest		(191	)
Total operating leases	$	880

Other information was as follows:

	December 31, 2020		December 31, 2019
Weighted-average remaining lease term for operating leases	9.6 years		10.6 years
Weighted-average discount rate for operating leases		2.79%		2.76%

Note F – Goodwill and Intangible Assets

Goodwill: The change in goodwill during the year is as follows:

	2020		2019			2018
Beginning of year	$	7,319	$	7,371		$	7,371
Finalization of Milton branch sale		----		(52	)		----
End of year	$	7,319	$	7,319		$	7,371

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. During 2020, the general economic conditions the Company operates in had trended from generally stable to somewhat challenged in relation to the pandemic. At December 31, 2020, the Company’s reporting unit remained profitable and had positive equity. However, earnings for 2020 had been negatively impacted by adding general reserves to the allowance in relation to the pandemic and to a lower net interest margin in relation to the first quarter rate cuts. As a result, the Company’s stock price experienced a decrease in value during 2020, and was trading below book value at December 31, 2020. Given the economic outlook, the challenge of growing earnings going forward in this environment, and the Company’s stock price trading below book value, management could not conclude that evidence provided by a qualitative assessment would support that it would be more likely than not the fair value of goodwill is more than the carrying amount. Therefore, the Company proceeded to complete the quantitative impairment test.

The quantitative impairment test includes comparing the carrying value of the reporting unit, including the existing goodwill and intangible assets, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, a goodwill impairment charge is recorded for the amount in which the carrying value of the reporting unit exceeds the fair value of the reporting unit, up to the amount of goodwill attributed to the reporting unit. After performing the quantitative testing, it was determined that the reporting unit’s fair value exceeded the reporting unit’s carrying value, resulting in no impairment for the year ended December 31, 2020.

At December 31, 2019, the Company’s reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it is more likely than not that fair value of goodwill is more than the carrying value, resulting in no impairment for the year ended December 31, 2019. Therefore, the Company did not proceed to step one of the annual goodwill impairment testing requirement.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note F – Goodwill and Intangible Assets (continued)

Acquired intangible assets: Acquired intangible assets were as follows at year-end:

	2020						2019
	Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization
Amortized intangible assets:
Core deposit intangibles		$	738		$	626		$	738		$	564

Aggregate amortization expense was $62 for 2020, $206 for 2019 and $135 for 2018.

Estimated amortization expense for each of the next five years:

2021	$	48
2022		35
2023		21
2024		8
2025		----
Total	$	112

Note G - Deposits

Following is a summary of interest-bearing deposits at December 31:

		2019
NOW accounts	185,364	$	158,434
Savings and Money Market	286,937		230,672
Time:
In denominations of 250,000 or less	165,834		175,334
In denominations of more than 250,000	40,827		34,424
Total time deposits	206,661		209,758
Total interest-bearing deposits	678,962	$	598,864

All values are in US Dollars.

Following is a summary of total time deposits by remaining maturity at December 31, 2020:

2021	$	136,634
2022		51,677
2023		13,727
2024		3,289
2025		1,147
Thereafter		187
Total	$	206,661

Brokered deposits, included in time deposits, were $18,834 and $25,797 at December 31, 2020 and 2019, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note H - Interest Rate Swaps

The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. The Company utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. As part of this strategy, the Company provides its customer with a fixed-rate loan while creating a variable-rate asset for the Company by the customer entering into an interest rate swap with the Company on terms that match the loan. The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative. At December 31, 2020, the Company had interest rate swaps associated with commercial loans with a notional value of $10,967 and a fair value of $913. This is compared to interest rate swaps with a notional value of $7,633 and a fair value of $459 at December 31, 2019. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreement. To further offset the risk exposure related to market value fluctuations of its interest rate swaps, the Company maintains collateral deposits on hand with a third-party correspondent, which totaled $1,250 at December 31, 2020 and $750 at December 31, 2019.

Note I - Other Borrowed Funds

Other borrowed funds at December 31, 2020 and 2019 are comprised of advances from the FHLB of Cincinnati and promissory notes.

	FHLB Borrowings		Promissory Notes		Totals
2020	$	24,665	$	3,198	$	27,863
2019	$	29,758	$	4,233	$	33,991

Pursuant to collateral agreements with the FHLB, advances are secured by $297,281 in qualifying mortgage loans, $57,457 in commercial loans and $5,365 in FHLB stock at December 31, 2020. Fixed-rate FHLB advances of $24,665 mature through 2042 and have interest rates ranging from 1.53% to 3.31% and a year-to-date weighted average cost of 2.40% and 2.39% at December 31, 2020 and 2019, respectively. There were no variable-rate FHLB borrowings at December 31, 2020.

At December 31, 2020, the Company had a cash management line of credit enabling it to borrow up to $100,000 from the FHLB. All cash management advances have an original maturity of 90 days. The line of credit must be renewed on an annual basis. There was $100,000 available on this line of credit at December 31, 2020.

Based on the Company’s current FHLB stock ownership, total assets and pledgeable loans, the Company had the ability to obtain borrowings from the FHLB up to a maximum of $204,060 at December 31, 2020. Of this maximum borrowing capacity of $204,060, the Company had $102,656 available to use as additional borrowings, of which $100,000 could be used for short-term, cash management advances, as mentioned above.

Promissory notes, issued primarily by Ohio Valley, are due at various dates through a final maturity date of December 9, 2021, and have fixed rates ranging from 1.00% to 2.85% and a year-to-date weighted average cost of 2.20% at December 31, 2020, as compared to 2.73% at December 31, 2019. At December 31, 2020, there were six promissory notes payable by Ohio Valley to related parties totaling $3,198. See Note M for further discussion of related party transactions. There were no Promissory notes payable to other banks at December 31, 2020, as compared to $405 at December 31, 2019.

Letters of credit issued on the Bank’s behalf by the FHLB to collateralize certain public unit deposits as required by law totaled $76,740 at December 31, 2020 and $56,500 at December 31, 2019.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note I - Other Borrowed Funds (continued)

Scheduled principal payments over the next five years:	FHLB Borrowings		Promissory Notes		Totals
2021	$	3,134	$	3,198	$	6,332
2022		2,683		----		2,683
2023		2,542		----		2,542
2024		2,173		----		2,173
2025		1,897		----		1,897
Thereafter		12,236		----		12,236
	$	24,665	$	3,198	$	27,863

Note J - Subordinated Debentures and Trust Preferred Securities

On March 22, 2007, a trust formed by Ohio Valley issued $8,500 of adjustable-rate trust preferred securities as part of a pooled offering of such securities. The rate on these trust preferred securities was fixed at 6.58% for five years, and then converted to a floating-rate term on March 15, 2012, based on a rate equal to the 3-month LIBOR plus 1.68%. The interest rate on these trust preferred securities was 1.90% at December 31, 2020 and 3.57% at December 31, 2019. There were no debt issuance costs incurred with these trust preferred securities. The Company issued subordinated debentures to the trust in exchange for the proceeds of the offering. The subordinated debentures must be redeemed no later than June 15, 2037.

Under the provisions of the related indenture agreements, the interest payable on the trust preferred securities is deferrable for up to five years and any such deferral is not considered a default. During any period of deferral, the Company would be precluded from declaring or paying dividends to shareholders or repurchasing any of the Company’s common stock. Under generally accepted accounting principles, the trusts are not consolidated with the Company. Accordingly, the Company does not report the securities issued by the trust as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by the trust. Since the Company’s equity interest in the trusts cannot be received until the subordinated debentures are repaid, these amounts have been netted. The subordinated debentures may be included in Tier 1 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

Note K - Income Taxes

The provision for income taxes consists of the following components:

	2020		2019		2018
Current tax expense	$	2,036	$	1,446	$	2,389
Deferred tax (benefit) expense		12		367		(134	)
Total income taxes	$	2,048	$	1,813	$	2,255

The source of deferred tax assets and deferred tax liabilities at December 31:

	2020			2019
Items giving rise to deferred tax assets:
Allowance for loan losses	$	1,557		$	1,364
Deferred compensation		1,822			1,700
Deferred loan fees/costs		136			110
Other real estate owned		1			4
Accrued bonus		212			204
Purchase accounting adjustments		18			24
Net operating loss		99			115
Lease liability		235			274
Other		339			346
Items giving rise to deferred tax liabilities:
Mortgage servicing rights		(100	)		(77	)
FHLB stock dividends		(676	)		(676	)
Unrealized gain on securities available for sale		(647	)		(140	)
Prepaid expenses		(202	)		(182	)
Depreciation and amortization		(894	)		(579	)
Right-of-use asset		(235	)		(274	)
Other		----			----
Net deferred tax asset	$	1,665		$	2,213

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note K - Income Taxes (continued)

The Company determined that it was not required to establish a valuation allowance for deferred tax assets since management believes that the deferred tax assets are likely to be realized through the future reversals of existing taxable temporary differences, deductions against forecasted income and tax planning strategies.

At December 31, 2020, the Company’s deferred tax asset related to Section 382 net operating loss carryforwards was $471, which will expire in 2026.

The difference between the financial statement tax provision and amounts computed by applying the statutory federal income tax rate of 21% to income before taxes is as follows:

	2020			2019			2018
Statutory tax	$	2,584		$	2,461		$	2,982
Effect of nontaxable interest		(348	)		(336	)		(352	)
Effect of nontaxable insurance premiums		(210	)		(212	)		(218	)
Income from bank owned insurance, net		(161	)		(141	)		(142	)
Effect of postretirement benefits		124			54			20
Effect of state income tax		125			100			33
Tax credits		(102	)		(145	)		(217	)
Other items		36			32			149
Total income taxes	$	2,048		$	1,813		$	2,255

At December 31, 2020 and December 31, 2019, the Company had no unrecognized tax benefits. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. The Company did not recognize any interest and/or penalties related to income tax matters for the periods presented.

The Company is subject to U.S. federal income tax as well as West Virginia state income tax. The Company is no longer subject to federal or state examination for years prior to 2017. The tax years 2017-2019 remain open to federal and state examinations.

Note L - Commitments and Contingent Liabilities

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note L - Commitments and Contingent Liabilities (continued)

Following is a summary of such commitments at December 31:

	2020		2019
Fixed rate	$	1,127	$	660
Variable rate		83,956		70,561
Standby letters of credit		3,373		3,957

At December 31, 2020, the fixed-rate commitments have interest rates ranging from 2.50% to 6.25% and maturities ranging from 15 years to 30 years.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

During the years covered by these consolidated financial statements, the Company participated as a facilitator of tax refunds pursuant to a clearing agreement with a third-party tax refund product provider. The clearing agreement required the Bank to process electronic refund checks (“ERC’s”) and electronic refund deposits (“ERD’s”) presented for payment on behalf of taxpayers containing taxpayer refunds. The Bank received a fee paid by the third-party tax refund product provider for each transaction that is processed. In 2018, the third-party tax refund product provider ceased utilizing the services of the Bank.

There are various contingent liabilities that are not reflected in the financial statements, including claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on financial condition or results of operations.

Note M - Related Party Transactions

Certain directors, executive officers and companies with which they are affiliated were loan customers during 2020. A summary of activity on these borrower relationships with aggregate debt greater than $120 is as follows:

Total loans at January 1, 2020	$	3,974
New loans		54
Repayments		(1,588	)
Other changes		289
Total loans at December 31, 2020	$	2,729

Other changes include adjustments for loans applicable to one reporting period that are excludable from the other reporting period, such as changes in persons classified as directors, executive officers and companies’ affiliates.

Deposits from principal officers, directors, and their affiliates at year-end 2020 and 2019 were $94,056 and $47,911. In addition, the Company had promissory notes outstanding with directors and their affiliates totaling $3,198 at year-end 2020 and $3,558 at year-end 2019. The interest rates ranged from 1.00% to 2.85%, with terms ranging from 10 to 24 months.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note N - Employee Benefits

The Bank has a profit-sharing plan for the benefit of its employees and their beneficiaries. Contributions to the plan are determined by the Board of Directors of Ohio Valley. Contributions charged to expense were $242, $264, and $352 for 2020, 2019 and 2018.

Ohio Valley maintains an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees of the Company. Ohio Valley issues shares to the ESOP, purchased by the ESOP with subsidiary cash contributions, which are allocated to ESOP participants based on relative compensation. The total number of shares held by the ESOP, all of which have been allocated to participant accounts, were 298,294 and 365,274 at December 31, 2020 and 2019. In addition, the subsidiaries made contributions to its ESOP Trust as follows:

	Years ended December 31
	2020		2019		2018
Number of shares issued		----		8,333		7,294
Fair value of stock contributed	$	----	$	328	$	295
Cash contributed		614		500		500
Total expense	$	614	$	828	$	795

Life insurance contracts with a cash surrender value of $33,829 and annuity assets of $2,170 at December 31, 2020 have been purchased by the Company, the owner of the policies. The purpose of these contracts was to replace a current group life insurance program for executive officers, implement a deferred compensation plan for directors and executive officers, implement a director retirement plan and implement supplemental retirement plans for certain officers. Under the deferred compensation plan, Ohio Valley pays each participant the amount of fees deferred plus interest over the participant’s desired term, upon termination of service. Under the director retirement plan, participants are eligible to receive ongoing compensation payments upon retirement subject to length of service. The supplemental retirement plans provide payments to select executive officers upon retirement based upon a compensation formula determined by Ohio Valley’s Board of Directors. The present value of payments expected to be provided are accrued during the service period of the covered individuals and amounted to $8,377 and $7,815 at December 31, 2020 and 2019. Expenses related to the plans for each of the last three years amounted to $743, $627, and $602. In association with the split-dollar life insurance plan, the present value of the postretirement benefit totaled $3,721 at December 31, 2020 and $3,130 at December 31, 2019.

Note O - Fair Value of Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note O - Fair Value of Financial Instruments (continued)

The following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:

Securities: The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management’s own assumptions of fair value based on factors that include recent market data or industry-wide statistics. On an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs that typically approximate 10%.

Interest Rate Swap Agreements: The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note O - Fair Value of Financial Instruments (continued)

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements at December 31, 2020, Using
	Quoted Prices in<br><br> <br>Active Markets<br><br> <br>for Identical<br><br> <br>Assets<br><br> <br>(Level 1)		Significant Other<br><br> <br>Observable<br><br> <br>Inputs<br><br> <br>(Level 2)			Significant<br><br> <br>Unobservable<br><br> <br>Inputs<br><br> <br>(Level 3)
Assets:
U.S. Government sponsored entity securities		----	$	18,153			----
Agency mortgage-backed securities, residential		----		94,169			----
Interest rate swap derivatives		----		928			----
Liabilities:
Interest rate swap derivatives		----		(928	)		----
	Fair Value Measurements at December 31, 2019, Using
---	---	---	---	---	---	---	---
	Quoted Prices in<br><br> <br>Active Markets<br><br> <br>for Identical<br><br> <br>Assets<br><br> <br>(Level 1)		Significant Other<br><br> <br>Observable<br><br> <br>Inputs<br><br> <br>(Level 2)			Significant<br><br> <br>Unobservable<br><br> <br>Inputs<br><br> <br>(Level 3)
Assets:
U.S. Government sponsored entity securities		----	$	16,736			----
Agency mortgage-backed securities, residential		----		88,582			----
Interest rate swap derivatives		----		465			----
Liabilities:
Interest rate swap derivatives		----		(465	)		----

Assets and Liabilities Measured on a Nonrecurring Basis

There were no assets or liabilities measured at fair value on a nonrecurring basis at December 31, 2020. Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2019 are summarized below:

	Fair Value Measurements at December 31, 2019, Using
	Quoted Prices in<br><br> <br>Active Markets<br><br> <br>for Identical<br><br> <br>Assets<br><br> <br>(Level 1)			Significant Other<br><br> <br>Observable<br><br> <br>Inputs<br><br> <br>(Level 2)			Significant<br><br> <br>Unobservable<br><br> <br>Inputs<br><br> <br>(Level 3)
Assets:
Impaired loans:
Commercial real estate:
Nonowner-occupied		$	----		$	----		$	1,644
Commercial and Industrial			----			----			4,559

At December 31, 2020, the Company had no recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans and, therefore, recorded no impact to provision expense during the year ended December 31, 2020. At December 31, 2019, the recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $7,010, with a corresponding valuation allowance of $807, resulting in an increase of $807 in provision expense during the year ended December 31, 2019, with no corresponding charge-offs recognized.

There was no other real estate owned that was measured at fair value less costs to sell at December 31, 2020 and 2019. Furthermore, there were no corresponding write-downs during the years ended December 31, 2020 and 2019.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note O - Fair Value of Financial Instruments (continued)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2019:

December 31, 2019			Valuation<br><br> <br>Technique(s)	Unobservable<br><br> <br>Input(s)	Range
Impaired loans:
Commercial real estate:
Owner-occupied	$	1,644	Sales approach	Adjustment to comparables	0% to 20%	9.7%
Commercial and Industrial		4,559	Sales approach	Adjustment to comparables	0% to 61%	10.3%

The carrying amounts and estimated fair values of financial instruments at December 31, 2020 and December 31, 2019 are as follows:

			Fair Value Measurements at December 31, 2020 Using:
	Carrying<br><br> <br>Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents	$	138,303	$	138,303	$	----	$	----	$	138,303
Certificates of deposit in financial institutions		2,500		----		2,500		----		2,500
Securities available for sale		112,322		----		112,322		----		112,322
Securities held to maturity		10,020		----		4,989		5,355		10,344
Loans, net		841,504		----		----		837,387		837,387
Interest rate swap derivatives		928		----		928		----		928
Accrued interest receivable		3,319		----		283		3,036		3,319
Financial Liabilities:
Deposits		993,739		314,777		680,904		----		995,681
Other borrowed funds		27,863		----		29,807		----		29,807
Subordinated debentures		8,500		----		5,556		----		5,556
Interest rate swap derivatives		928		----		928		----		928
Accrued interest payable		1,100		1		1,099		----		1,100
			Fair Value Measurements at December 31, 2019 Using:
---	---	---	---	---	---	---	---	---	---	---
	Carrying<br><br> <br>Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents	$	52,356	$	52,356	$	----	$	----	$	52,356
Certificates of deposit in financial institutions		2,360		----		2,360		----		2,360
Securities available for sale		105,318		----		105,318		----		105,318
Securities held to maturity		12,033		----		6,446		5,958		12,404
Loans, net		766,502		----		----		771,285		771,285
Interest rate swap derivatives		465		----		465		----		465
Accrued interest receivable		2,564		----		315		2,249		2,564
Financial Liabilities:
Deposits		821,471		222,607		599,937		----		822,544
Other borrowed funds		33,991		----		34,345		----		34,345
Subordinated debentures		8,500		----		6,275		----		6,275
Interest rate swap derivatives		465		----		465		----		465
Accrued interest payable		1,589		3		1,586		----		1,589

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note P - Regulatory Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, 2020, the Company and Bank met all capital adequacy requirements to which they are subject.

Prompt corrective action regulations applicable to insured depository institutions provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2020 and 2019, the Bank met the capital requirements to be deemed well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since year-end 2020 and 2019 that management believes have changed the institution's well capitalized category.

In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio ("CBLR") framework, for qualifying community banking organizations (banks and holding companies), consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020 and was elected by the Bank as of March 31, 2020. In April 2020, the federal banking agencies issued an interim final rule that makes temporary changes to the CBLR framework, pursuant to Section 4012 of the Coronavirus Aid, Relief, and Economic Security CARES Act, and a second interim final rule that provides a graduated increase in the CBLR requirement after the expiration of the temporary changes implemented pursuant to Section 4012 of the CARES Act.

The CBLR removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets ("leverage") ratio. Qualifying banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies' capital rules and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the CBLR minimum requirement is 8% as of December 31, 2020, 8.5% for calendar year 2021, and 9% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that the Bank maintains a leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond.

Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. As of December 31, 2020, both the Company and the Bank were qualifying community banking organizations as defined by the federal banking agencies and elected to measure capital adequacy under the CBLR framework.

The following tables summarize the actual and required capital amounts of the Company and the Bank as of year-end.

	Actual					To Be Well Capitalized<br><br> <br>Under Prompt Corrective<br><br> <br>Action Regulations
2020	Amount			Ratio		Amount			Ratio
Tier 1 capital (to average assets)
Consolidated		$	134,957		11.7%		$	91,937		8.0%
Bank			120,989		10.7			90,407		8.0

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note P – Regulatory Matters (continued)

	Actual				Minimum Regulatory		Minimum<br><br> <br>To Be Well
2019	Amount		Ratio		Capital Ratio ^(2)^		Capitalized ^(1)^
Total capital (to risk weighted assets)
Consolidated	$	134,930		18.7%		8.0%		10.0%
Bank		120,716		17.0		8.0		10.0
Common equity Tier 1 capital (to risk weighted assets)
Consolidated		120,158		16.6		4.5		N/A
Bank		114,772		16.1		4.5		6.5
Tier 1 capital (to risk weighted assets)
Consolidated		128,658		17.8		6.0		6.0
Bank		114,772		16.1		6.0		8.0
Tier 1 capital (to average assets)
Consolidated		128,658		12.5		4.0		N/A
Bank		114,772		11.3		4.0		5.0
(1)	For the Company, these amounts would be required for the Company to engage in activities permissible only for a bank holding company that meets the<br> financial holding company requirements if the Company were not subject to the SBHCP. For the Bank, these are the amounts required for the Bank to be deemed well capitalized under the prompt corrective action regulations.
---	---
(2)	Excludes capital conservation buffer of 2.50%.
---	---

Dividends paid by the subsidiaries are the primary source of funds available to Ohio Valley for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the subsidiaries to Ohio Valley is subject to restrictions by regulatory authorities and state law. These restrictions generally limit dividends to the current and prior two years retained earnings of the Bank and Loan Central, Inc., and 90% of the prior year’s net income of OVBC Captive, Inc. At January 1, 2021 approximately $13,465 of the subsidiaries’ retained earnings were available for dividends under these guidelines. In addition to these restrictions, dividend payments cannot reduce regulatory capital levels below minimum regulatory guidelines. The amount of dividends payable by the Bank is also restricted if the Bank does not hold a capital conservation buffer. The ability of Ohio Valley to borrow funds from the Bank is limited as to amount and terms by banking regulations. The Board of Governors of the Federal Reserve System also has a policy requiring Ohio Valley to provide notice to the FRB in advance of the payment of a dividend to Ohio Valley’s shareholders under certain circumstances, and the FRB may disapprove of such dividend payment if the FRB determines the payment would be an unsafe or unsound practice.

Note Q - Parent Company Only Condensed Financial Information

Below is condensed financial information of Ohio Valley. In this information, Ohio Valley’s investment in its subsidiaries is stated at cost plus equity in undistributed earnings of the subsidiaries since acquisition. This information should be read in conjunction with the consolidated financial statements of the Company.

CONDENSED STATEMENTS OF CONDITION

	Years ended December 31:
Assets	2020		2019
Cash and cash equivalents	$	4,112	$	4,308
Investment in subsidiaries		143,424		134,910
Notes receivable – subsidiaries		1,603		1,963
Other assets		32		48
Total assets	$	149,171	$	141,229
Liabilities
Notes payable	$	3,198	$	4,233
Subordinated debentures		8,500		8,500
Other liabilities		1,149		317
Total liabilities		12,847		13,050
Shareholders’ Equity
Total shareholders’ equity		136,324		128,179
Total liabilities and shareholders’ equity	$	149,171	$	141,229

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note Q - Parent Company Only Condensed Financial Information (continued)

CONDENSED STATEMENTS OF INCOME

	Years ended December 31:
Income:	2020		2019		2018
Interest on notes	$	41	$	47	$	53
Dividends from subsidiaries		4,125		4,375		4,225
Expenses:
Interest on notes		82		139		185
Interest on subordinated debentures		208		356		330
Operating expenses		344		377		351
Income before income taxes and equity in undistributed earnings of subsidiaries		3,532		3,550		3,412
Income tax benefit		121		169		164
Equity in undistributed earnings of subsidiaries		6,606		6,188		8,368
Net Income	$	10,259	$	9,907	$	11,944
Comprehensive Income	$	12,167	$	12,570	$	10,860

CONDENSED STATEMENTS OF CASH FLOWS

	Years ended December 31:
Cash flows from operating activities:	2020			2019			2018
Net Income	$	10,259		$	9,907		$	11,944
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(6,606	)		(6,188	)		(8,368	)
Common stock issued to ESOP		----			328			295
Change in other assets		16			45			(26	)
Change in other liabilities		832			(214	)		262
Net cash provided by operating activities		4,501			3,878			4,107
Cash flows from investing activities:
Change in notes receivable		360			1,037			320
Net cash provided by investing activities		360			1,037			320
Cash flows from financing activities:
Change in notes payable		(1,035	)		(2,046	)		(1,045	)
Proceeds from common stock through dividend reinvestment		----			1,407			1,325
Cash dividends paid		(4,022	)		(4,000	)		(3,967	)
Net cash used in financing activities		(5,057	)		(4,639	)		(3,687	)
Cash and cash equivalents:
Change in cash and cash equivalents		(196	)		276			740
Cash and cash equivalents at beginning of year		4,308			4,032			3,292
Cash and cash equivalents at end of year	$	4,112		$	4,308		$	4,032

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note R - Segment Information

The reportable segments are determined by the products and services offered, primarily distinguished between banking and consumer finance. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business which are then aggregated if operating performance, products/services, and customers are similar. Loans, investments, and deposits provide the majority of the net revenues from the banking operation, while loans provide the majority of the net revenues for the consumer finance segment. All Company segments are domestic.

Total revenues from the banking segment, which accounted for the majority of the Company’s total revenues, totaled 94.3%, 94.2%, and 92.9% of total consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively.

The accounting policies used for the Company’s reportable segments are the same as those described in Note A - Summary of Significant Accounting Policies. Income taxes are allocated based on income before tax expense. All goodwill is in the Banking segment.

Segment information is as follows:

	Year Ended December 31, 2020
	Banking		Consumer Finance		Total Company
Net interest income	$	37,825	$	2,157	$	39,982
Provision expense		2,945		35		2,980
Noninterest income		10,344		1,094		11,438
Noninterest expense		33,693		2,440		36,133
Tax expense		1,886		162		2,048
Net income		9,645		614		10,259
Assets		1,173,820		13,112		1,186,932
	Year Ended December 31, 2019
---	---	---	---	---	---	---
	Banking		Consumer Finance		Total Company
Net interest income	$	39,865	$	3,187	$	43,052
Provision expense		875		125		1,000
Noninterest income		8,989		177		9,166
Noninterest expense		37,026		2,472		39,498
Tax expense		1,653		160		1,813
Net income		9,300		607		9,907
Assets		1,000,315		12,957		1,013,272
	Year Ended December 31, 2018
---	---	---	---	---	---	---
	Banking		Consumer Finance		Total Company
Net interest income	$	40,380	$	3,346	$	43,726
Provision expense		850		189		1,039
Noninterest income		8,243		695		8,938
Noninterest expense		34,841		2,585		37,426
Tax expense		1,990		265		2,255
Net income		10,942		1,002		11,944
Assets		1,017,902		12,591		1,030,493

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note S - Consolidated Quarterly Financial Information (unaudited)

	Quarters Ended
	Mar. 31		Jun. 30			Sept. 30			Dec. 31
2020
Total interest income	$	11,785	$	11,399		$	11,574		$	11,415
Total interest expense		1,781		1,604			1,492			1,314
Net interest income		10,004		9,795			10,082			10,101
Provision for loan losses^^		3,846		(393	)		(2	)		(471	)
Noninterest income^^		4,442		2,249			2,434			2,313
Noninterest expense		9,519		9,602			9,891			7,121
Net income		1,002		2,263			2,294			4,700
Earnings per share	$	0.21	$	0.47		$	0.48		$	0.98
2019
Total interest income	$	13,058	$	12,483		$	12,521		$	12,255
Total interest expense		1,671		1,830			1,895			1,869
Net interest income		11,387		10,653			10,626			10,386
Provision for loan losses^^		2,377		(806	)		444			(1,015	)
Noninterest income^^		1,846		2,003			2,107			3,210
Noninterest expense		9,568		9,791			9,738			10,401
Net income		1,193		3,079			2,137			3,498
Earnings per share	$	0.25	$	0.65		$	0.45		$	0.73

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Ohio Valley Banc Corp.

Gallipolis, Ohio

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of condition of Ohio Valley Banc Corp. (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses – Qualitative Factors

As more fully described in Note A and Note C to the consolidated financial statements, the Company’s allowance for loan losses represents management’s best estimate of probable incurred losses in the loan portfolio. For loans that are not specifically identified for impairment, management performs a quantitative and qualitative analysis to determine the general reserve portion of the allowance for loan losses. The quantitative component consists of historical loss experience determined by portfolio segment and is based on the actual loss history experienced by the Company. Actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. Levels of criticized and classified assets impact the qualitative reserve. Management exercised significant judgment when assessing these qualitative factors in estimating the allowance for loan losses.

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

We identified the qualitative factor component of the allowance for loan losses as a critical audit matter as auditing this component of the allowance for loan losses involved especially subjective auditor judgment. The principal consideration for our determination of this matter as a critical audit matter is that adjustments for qualitative factors depend significantly on management’s judgment.

The primary audit procedures we performed to address this critical audit matter included the following:

•	Tested the operating effectiveness of controls over the Company’s loan grading
•	Performed testing over the completeness and accuracy of criticized and classified assets
---	---
•	Evaluated the relevance of management’s judgements, assumptions, and data used in the development of the qualitative factors
---	---
•	Evaluated management’s judgments and assumptions used to determine the qualitative adjustments for reasonableness, and the reliability of the underlying data on which these adjustments are based
---	---
•	Performed data validation of inputs and tested mathematical accuracy of management’s calculation
---	---
•	Performed substantive analytical procedures by analyzing underlying credit quality metrics of the loan portfolio and directional consistency of the allowance for loan losses balance and provision expense
---	---
/s/Crowe LLP
---
Crowe LLP

We have served as the Company’s auditor since 1992.

Louisville, Kentucky

March 24, 2021

MANAGEMENT'S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING

Board of Directors and Shareholders

Ohio Valley Banc Corp.

The management of Ohio Valley Banc Corp. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

The system of internal control over financial reporting as it relates to the consolidated financial statements is evaluated for effectiveness by management. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed Ohio Valley Banc Corp.’s system of internal control over financial reporting as of December 31, 2020, in relation to criteria for effective internal control over financial reporting as described in the 2013 “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that, as of December 31, 2020, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control Integrated Framework.”

Crowe LLP, independent registered public accounting firm, has not issued an integrated audit report on Ohio Valley Banc Corp.’s internal control over financial reporting.

Ohio Valley Banc Corp.

/s/Thomas E. Wiseman	/s/Scott W. Shockey
Thomas E. Wiseman<br><br> <br>Chief Executive Officer	Scott W. Shockey<br><br> <br>Senior Vice President, CFO
March 24, 2021

PERFORMANCE GRAPH

OHIO VALLEY BANC CORP.

Year ended December 31, 2020

The following graph sets forth a comparison of five-year cumulative total returns among the Company's common shares (indicated “Ohio Valley Banc Corp.” on the Performance Graph), the S & P 500 Index (indicated “S & P 500” on the Performance Graph), and SNL Securities SNL $1 Billion-$5 Billion Bank Asset-Size Index (indicated “SNL $1 B-$5 B Bank Index”) for fiscal years indicated. Information reflected on the graph assumes an investment of $100 on December 31, 2015, in the common shares of each of the Company, the S & P 500 Index, and the SNL $1B-$5B Bank Index. Cumulative total return assumes reinvestment of dividends. The SNL $1 B-$5 B Bank Index represents the stock performance of 146 banks located throughout the United States, including the Company, within the respective asset range as selected by SNL Securities of Charlottesville, Virginia.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

Certain statements contained in this report and other publicly available documents incorporated herein by reference constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as “believes,” “anticipates,” “expects,” “intends,” “plan,” “goal,” “seek,” “project,” “estimate,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and other similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, particularly with regard to developments related to the Coronavirus (“COVID-19”) pandemic, and which could cause actual results to differ materially from those expressed in such forward looking statements. These factors include, but are not limited to: the effects of COVID-19 on our business, operations, customers and capital position; higher default rates on loans made to our customers related to COVID-19 and its impact on our customers’ operations and financial condition; the impact of COVID-19 on local, national and global economic conditions; unexpected changes in interest rates or disruptions in the mortgage market related to COVID-19; the effects of various governmental responses to COVID-19; political uncertainty caused by, among other things, political parties and tensions surrounding the current socioeconomic landscape; changes in political, economic or other factors, such as inflation rates, recessionary or expansive trends, taxes, the effects of implementation of legislation and the continuing economic uncertainty in various parts of the world; competitive pressures; fluctuations in interest rates; the level of defaults and prepayment on loans made by the Company; unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes. Additional detailed information concerning such factors is available in the Company’s filings with the Securities and Exchange Commission, under the Exchange Act, including the disclosure under the heading “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any intention to republish revised or updated forward looking statements, whether as a result of new information, unanticipated future events or otherwise.

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this discussion is to provide an analysis of the financial condition and results of operations of Ohio Valley Banc Corp. (“Ohio Valley” or the “Company”) that is not otherwise apparent from the audited consolidated financial statements included in this report. The accompanying consolidated financial information has been prepared by management in conformity with U.S. generally accepted accounting principles (“US GAAP”) and is consistent with that reported in the consolidated financial statements. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following tables and related discussion. All dollars are reported in thousands, except share and per share data.

BUSINESS OVERVIEW:

The Company is primarily engaged in commercial and retail banking through its wholly-owned subsidiary, The Ohio Valley Bank Company (the “Bank”), offering a blend of commercial and consumer banking services within southeastern Ohio, as well as western West Virginia. The banking services offered by the Bank include the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; the making of construction and real estate loans; and credit card services. The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. Ohio Valley also has a subsidiary that engages in consumer lending generally to individuals with higher credit risk history, Loan Central, Inc. (“Loan Central”), a subsidiary insurance agency that facilitates the receipt of insurance commissions, Ohio Valley Financial Services Agency, LLC, and a limited purpose property and casualty insurance company, OVBC Captive, Inc. (the “Captive”). The Bank has one wholly-owned subsidiary, Ohio Valley REO, LLC, to which the Bank transfers certain real estate acquired by the Bank through foreclosure for sale.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In January 2020, the Bank began offering Tax Refund Advance Loans (“TALs”) to Loan Central tax customers. A TAL represents a short-term loan offered by the Bank to tax preparation customers of Loan Central. Previously, Loan Central offered and originated tax refund anticipation loans that represented a large composition of its annual earnings. However, new Ohio laws that became effective in April 2019 placed numerous restrictions on short-term and small loans extended by certain non-bank lenders in Ohio. As a result, Loan Central is no longer able to directly offer the service to its tax preparation customers, but it is able to do so through the Bank. After Loan Central prepares a customer’s tax return, the customer is offered the opportunity to have immediate access to a portion of the anticipated tax refund by entering into a TAL with the Bank. As part of the process, the tax customer completes a loan application and authorizes the expected tax refund to be deposited with the Bank once it is issued by the IRS. Once the Bank receives the tax refund, the refund is used to repay the TAL and Loan Central’s tax preparation fees, then the remainder of the refund is remitted to Loan Central’s tax customer.

IMPACT of COVID-19:

COVID-19 has continued to cause significant disruption in the United States and international economies and financial markets. The primary markets served by the Company in southeastern Ohio and western West Virginia have been significantly impacted by COVID-19, which has changed the way we live and work. The actions taken by the Governors of the States of Ohio and West Virginia beginning in March of 2020 were imposed to mitigate the spread and lessen the public health impact of COVID-19. During this time, the Bank’s primary channels of serving our customers have primarily consisted of drive-thru, mobile, and online banking services and appointment-only lobby services. We have leveraged our digital banking platform with our customers, and we have implemented company-wide remote working arrangements. Management will continue to closely monitor the impact of COVID-19 and will consider re-opening the lobbies of all the Bank’s financial service centers when it is safe to do so.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides assistance to small businesses through the establishment of the Paycheck Protection Program ("PPP"). The PPP provides small businesses with funds to pay up to 8 weeks of payroll costs, including benefits. The funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, utilities, and certain other expenses. Forgiveness of the PPP loans is based on the employer maintaining or quickly rehiring employees and maintaining compensation levels. The Company continues to support its clients who have experienced financial hardship due to COVID-19 through participation in the PPP, assistance with expedited deposits of CARES Act stimulus payments, and loan modifications, as needed.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:

SUMMARY

2020 v. 2019

Ohio Valley generated net income of $10,259 for 2020, an increase of $352, or 3.6%, from 2019. Earnings per share were $2.14 for 2020, an increase of 2.9% from 2019. The increase in net income and earnings per share for 2020 was impacted by higher noninterest income and lower noninterest expense, which collectively contributed to a $5,637 increase in earnings from 2019. Noninterest income growth during 2020 came mostly from proceeds of $2,000 received in a litigation settlement with a third-party. Further growth also came from higher tax preparation fees and mortgage banking income, partially offset by lower service charge fees and a net gain recorded from the sale of two branches in 2019. Lower noninterest expense was impacted primarily by an 8.0% decrease in salaries and employee benefit costs and a 39.4% decrease in professional fees, while software and marketing expenses collectively decreased 18.8% from 2019 to 2020. The positive effects from higher noninterest income and reduced overhead costs were partially offset by lower net interest income and higher provision expense during 2020, as compared to 2019. Net interest income was negatively affected by a net interest margin compression in relation to decreases in market rates in response to COVID-19 that contributed to lower earning asset yields during 2020. Average earning assets increased by 5.4% and loan fees increased by 3.3% during 2020, which partially offset the negative effects from lower asset yields. The increase in provision expense in 2020 was primarily due to an increase in general reserves related to COVID-19.

The Company’s net interest income in 2020 was $39,982, representing a decrease of $3,070, or 7.1%, from 2019. Impacting net interest income was the decrease in net interest margin in relation to the decrease in market rates. During the second half of 2019, the FRB reduced interest rates by 75 basis points, followed by another reduction of 150 basis points in March 2020 due to concerns about the impact of COVID-19 on the economy. Although the effects of lower market rates had reduced earning asset yields, the effects had not yet fully impacted the Company’s interest-bearing deposit costs, particularly time deposits. Furthermore, certain interest-bearing deposits were already at or near their interest rate floors, which also limited the Company’s ability to reduce deposit costs to the same magnitude as earning assets during 2020. Due to this lagging effect of deposit cost reduction combined with a more rate-sensitive earning asset portfolio, the Company’s net interest margin finished at 3.97% during the year ended December 31, 2020, a decrease of 54 basis points from the 4.51% net interest margin during the same period in 2019. Net interest income was also affected by lower loan fees impacted by the change in the Company’s business model for Loan Central’s assessment of fees for TALs as described above. This resulted in an $853 decrease in loan fees during 2020, as compared to 2019. Loan Central’s tax preparation fee income from TAL offerings during 2020 was recorded as noninterest income, as discussed below. Partially offsetting the negative impact from lower asset yields and fee revenue was growth in average earning assets, up $51,919 during 2020, as compared to 2019. The growth came largely from the impact of $35,141 in PPP loans that were originated during 2020, contributing to higher commercial and industrial loans at December 31, 2020. Average earning asset growth also came from the Company’s interest-bearing deposit account at the FRB, driven by heightened deposit balances received in relation to customers receiving stimulus funds from various government programs and their desire to preserve cash during this uncertain economic environment.

The Company’s provision expense during 2020 totaled $2,980, an increase of $1,980 compared to 2019. The increase in provision expense was largely impacted by the economic effects of COVID-19, which resulted in a higher general allocation of the allowance for loan losses. Based on declining economic conditions and increasing unemployment levels, management increased general reserves by $2,315 to reflect higher anticipated losses due to COVID-19. The Company will continue to closely monitor COVID-19 and will make appropriate adjustments to the allowance for loan losses as needed.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s noninterest income increased $2,272, or 24.8%, from 2019. The year-to-date increase in noninterest income was largely impacted by proceeds of $2,000 received in a litigation settlement with a third-party. The payment was paid to the Bank as part of a settlement agreement signed during the first quarter of 2020. The settlement agreement was related to the previously disclosed litigation the Bank filed against a third-party tax software product provider for early termination of its tax processing contract. For the year ended December 31, 2020, mortgage banking income increased $944 over the same period in 2019. Mortgage banking income has grown in response to the record low mortgage rates that have generated a significant volume of mortgages being refinanced in 2020. Further contributing to noninterest income growth was the Company’s change in its business model in 2020 from assessing TAL fees to now assessing tax preparation fees in response to a state law enacted in 2019. This change resulted in $644 of tax preparation fee income to be recorded during the year ended December 31, 2020. Partially offsetting the increases from the prior year was a net gain of $1,256 recorded on the sale of the Company’s Mount Sterling and New Holland, Ohio branches during the fourth quarter of 2019. Also having a negative impact on noninterest income was lower service charges on deposit accounts, which decreased $433 in 2020 compared to 2019. This was primarily related to customers maintaining higher deposit balances due to various economic stimulus payments, which led to lower overdraft fees.

The Company’s noninterest expenses during 2020 decreased $3,365, or 8.5%, from 2019. This decrease was impacted by salary and employee benefit expense, which decreased by $1,888, or 8.0%, during the year ended December 31, 2020, as compared to the same period in 2019. The decrease was largely the result of a voluntary severance package offered to select employees meeting certain criteria during the fourth quarter of 2019, which resulted in a one-time expense of $1,507. The Company realized additional savings in personnel expense during 2020 in connection with the voluntary early retirement program and the sale of the two branches during that same period. Lower noninterest expense was also impacted by professional fees, which decreased $989 during 2020 as a result of lower legal fees associated with collecting troubled loans and litigation related to the terminated tax processing contract. The Company also recognized less software expense in 2020, decreasing $251 from 2019, due to a transition from the use of various software platforms in 2019 that required an acceleration of expense on the remaining balance of those software assets being retired. The Company’s marketing expenses also decreased by $228 during the year ended December 31, 2020, compared to the same period in 2019, in large part due to the pandemic environment that limited the use of promotional items and the ability to execute other marketing strategies during 2020.

The Company’s provision for income taxes increased $235 during 2020, largely due to the changes in taxable income affected by the factors mentioned above.

2019 v. 2018

Ohio Valley generated net income of $9,907 in 2019, a decrease of $2,037, or 17.1%, from 2018. Earnings per share were $2.08 for 2019, a decrease of 17.8% from 2018. The decrease in net income and earnings per share for 2019 was impacted by lower net interest income and higher noninterest expense, which collectively contributed to a $2,746 decrease in earnings from 2018. Net interest income was negatively affected by a 3.2% decrease in average earning assets, primarily from lower interest-bearing deposits with banks. Further reducing net interest income was a deposit composition shift to higher costing time and money market deposits. Higher noninterest expense was impacted primarily by a 6.0% increase in salaries and employee benefit costs and a 24.4% increase in professional fees. These negative impacts to earnings were partially offset by higher noninterest income and stable provision expense during 2019, as compared to 2018. Noninterest income was positively impacted by a net gain from the sale of two branches during the fourth quarter of 2019 and lower losses on the sale of other real estate owned (“OREO”) properties, partially offset by lower tax processing fees. The change in provision expense was minimal due to lower net charge-offs and lower criticized loans during 2019.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s net interest income in 2019 was $43,052, representing a decrease of $674, or 1.5%, from 2018. Average earning assets decreased during 2019 by $32,338, or 3.2%, as compared to 2018, coming primarily from interest-bearing balances with other banks. The Company’s average interest-bearing Federal Reserve clearing account balance decreased $36,528, or 39.0%, during 2019, mostly due to not processing tax refunds in 2019. Prior to 2019, the Bank had facilitated the payment of tax refunds through a third-party tax refund product provider. In 2018, the third-party tax refund product provider elected to terminate its contract with the Bank early, effectively ceasing the receipt of future tax refunds at the end of 2018. Due to the absence of seasonal deposits from no tax processing activity, the Bank experienced a significant decline in its average Federal Reserve balances during 2019, as compared to 2018. In addition, the FRB’s action to decrease short-term interest rates by 75 basis points from August 2019 to October 2019 further limited interest earnings during the year. Net interest income was also negatively impacted by higher interest expense on deposits, which increased over 32.0% during 2019. The interest expense increase was largely attributable to time deposits, particularly CDs, repricing at higher market rates, as well as a consumer shift to higher-costing money market deposit accounts. The weighted average costs for time deposits and money market accounts increased 52 and 27 basis points in 2019 and 2018, respectively. Positive contributions to net interest income came primarily from the Company’s loans, with asset yields increasing 16 basis points and average balances increasing $1,865, or 0.2%, during 2019, as compared to 2018. Average loan growth came mostly from the residential and commercial real estate loan portfolios. While earning assets were down, the Company’s net interest margin increased in 2019, finishing at 4.51% in 2019, as compared to 4.43% in 2018. Lower balances maintained at the Federal Reserve, which diluted the net interest margin from the previous year due to the yield on those balances being less than other earning assets, such as loans and securities, contributed the most to the increase in net interest margin.

The Company’s provision expense in 2019 remained comparable to that of 2018, finishing with $1,000 in 2019 compared to $1,039 in 2018. During 2019, the Company experienced a decrease of $354 in net charge-offs, as well as the continuing trend of improved asset quality and economic risk factors, which were impacted by lower criticized assets and historical loan loss. As a result of this risk factor improvement, the general allocations of the allowance for loan losses decreased by 17.8% from year-end 2018. The impact from lower general allocations was partially offset by an increase in specific allocations on collateral dependent impaired loans from year-end 2018.

The Company’s noninterest income increased $228, or 2.6%, from 2018. The year-to-date increase in noninterest income was largely impacted by a net gain of $1,256 on the sale of its Mount Sterling and New Holland, Ohio branches during the fourth quarter of 2019. Lower costs on the sale of OREO, which decreased by $494, or 88.4%, from 2018, also improved noninterest revenue. Lower OREO expense in 2019 was primarily impacted by an asset write-down recorded during the fourth quarter of 2018 to lower the appraised value of one land development property. Noninterest revenue improvement in 2019 also came from interchange income growth, which increased 6.6% from 2018, driven primarily by the rising volume of debit and credit card transactions during 2019. Partially offsetting these growth areas of noninterest income were lower revenues from tax processing fees, which decreased $1,574 from 2018 as a result of the third-party tax refund product provider terminating its contract with the Bank.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s noninterest expenses during 2019 increased $2,072, or 5.5%, from 2018. This increase was impacted by salary and employee benefit expense, which grew $1,333, or 6.0%, during 2019, as compared to 2018. The increase was largely the result of a voluntary severance package offered to select employees meeting certain criteria during the fourth quarter of 2019. Offering this severance package resulted in a one-time expense of $1,507. Noninterest expense growth was also affected by a $492 increase in professional fees related to higher audit and litigation legal fees. Noninterest expense increases were partially offset by lower FDIC premium costs associated with lower assessment rates and the receipt of a portion of the Bank’s premium credit granted by the FDIC during the second half of 2019.

The Company’s provision for income taxes decreased $442 during 2019, largely due to the changes in taxable income affected by the factors mentioned above.

NET INTEREST INCOME

The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense incurred on interest-bearing liabilities. The Company earns interest and dividend income from loans, investment securities and short-term investments while incurring interest expense on interest-bearing deposits and short- and long-term borrowings. Net interest income is affected by changes in both the average volume and mix of assets and liabilities and the level of interest rates for financial instruments. Changes in net interest income are measured by net interest margin and net interest spread. Net interest margin is expressed as the percentage of net interest income to average interest-earning assets. Net interest spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Both of these are reported on a fully tax-equivalent (“FTE”) basis. Net interest margin exceeds the net interest rate spread because noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and stockholders' equity, also support interest-earning assets. The following is a discussion of changes in interest-earning assets, interest-bearing liabilities and the associated impact on interest income and interest expense for the three years ended December 31, 2020, 2019, and 2018. Tables I and II have been prepared to summarize the significant changes outlined in this analysis.

Net interest income in 2020 totaled $40,422 on an FTE basis, down $3,059, or 7.0%, from 2019. This negative change reflects the impact of a 54 basis point decrease in earning asset yield, partially offset by a 5.4% increase in average earning assets and a 48 basis point decrease in average interest-bearing liability cost. The average earning asset yield was impacted by the FRB’s action to lower rates by 75 basis points during the second half of 2019 and by 150 basis points in March 2020. The increase in average earning assets came mostly from interest-bearing balances with banks and loans, which increased 28.6% and 4.6% during 2020, respectively, as compared to the same period in 2019. Market rate decreases during 2019 and 2020 had a corresponding impact to lower average deposit costs, primarily within time, savings and money market deposits. The net interest margin decrease of 54 basis points reflected a 20 basis point positive impact from lower funding costs that was completely offset by a 68 basis point negative impact from the mix and yield on earning assets and a 6 basis point negative impact from the use of noninterest-bearing funding (i.e., demand deposits and shareholders’ equity).

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net interest income decreased in 2020 primarily due to the decrease in average earning asset yield, partially offset by the increase in average volume of earning assets plus the decrease in average cost of interest-bearing liabilities. The decrease in average earning asset yield was responsible for lowering FTE interest income by $6,418 during 2020 compared to 2019. This impact was partially offset by $2,285 in additional FTE interest income from higher average earning assets, and a reduction in interest expense of $1,042 associated with the average cost decrease in average interest-bearing liabilities. The decline in average earning asset yields for 2020 was partly impacted by interest-bearing balances with other banks. Balances within interest-bearing deposits with banks are driven primarily by the Company’s interest-bearing Federal Reserve clearing account. The rate cuts from the FRB in 2019 and 2020 had an immediate effect on reducing the interest income generated by the Company’s Federal Reserve clearing account. Beginning in August 2019, the FRB reduced short-term interest rates by 25 basis points for three consecutive months, lowering the clearing account interest rate to 1.75% at October 2019. In response to COVID-19, the FRB reduced rates again by 150 basis points in March 2020, which lowered the clearing account interest rate to 0.25%. As a result, the average yield factor on interest-bearing balances with other banks had a negative impact on 2020’s earnings, decreasing interest income by $1,285 in 2020, as compared to growth in interest income of $325 during 2019. The average volume on interest-bearing balances with other banks contributed to $287 in interest income growth during 2020, primarily from excess deposits within the Federal Reserve clearing account. The Company utilizes its interest-bearing Federal Reserve clearing account to manage excess funds, as well as to assist in funding earning asset growth. Higher levels of excess funds within the clearing account were impacted by the pandemic environment of 2020, which included customer deposits of stimulus monies from various government relief programs. The volume increase in the Bank’s Federal Reserve clearing account during 2020 led to a $17,415, or 28.6%, increase in average interest-bearing balances with other banks during 2020 compared to 2019, and also led to a higher composition of average interest-bearing balances with other banks, finishing at 7.7% of average earning assets in 2020, as compared to 6.3% in 2019.

In March, 2020, the Bank announced that it settled the lawsuit the Bank filed against the third-party tax refund provider alleging breach of contract. The settlement agreement required the third-party to make a $2,000 payment during the first quarter of 2020. In addition, the Bank entered into a new agreement with the third-party tax refund provider to process future electronic refund checks and deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The new agreement provides that the Bank will process refunds for five tax seasons, beginning with the 2021 tax season and going through the 2025 tax season. This is expected to lead to higher volumes of excess funds during such periods.

Net interest income was negatively impacted by loans, particularly with the decrease in average yield. The decrease in short-term rates during the second half of 2019 and in March 2020 had a direct impact on the repricings of a portion of the Company’s loan portfolio that reduced earnings in 2020. This decreased the average loan yield by 57 basis points to 5.37% at year-end 2020, as compared to 5.94% at year-end 2019, which caused FTE interest income to decrease by $4,584 during 2020. Partially offsetting the effects from loan yields was a $35,574, or 4.6%, increase in average loans, which contributed to $2,048 in additional FTE interest income during 2020 compared to 2019. This growth came predominantly from the commercial real estate and commercial and industrial loan segments. This was partly due to the increase in government-guaranteed PPP loans in 2020, as well as organic commercial loan growth within the Company’s primary market areas. While average loans increased in 2020, interest-bearing deposits with other banks experienced more accelerated growth in 2020. As a result, the Company’s average loan composition decreased slightly to 79.8% of average earning assets at year-end 2020, as compared to 80.4% for 2019.

Average securities of $127,321 at year-end 2020 represented a 0.8% decrease from the $128,391 in average securities at year-end 2019. Average taxable securities in 2020 increased 0.5% over the prior year, particularly from purchases within the agency mortgage-backed investment segment, while average tax exempt securities were down 15.0% from the prior year, largely related to maturities of state and municipal investments. The decline in average state and municipal investments contributed to a lower asset composition of average securities in 2020, finishing at 12.5% of average earning assets at year-end 2020, as compared to 13.3% at year-end 2019. Management continues to focus on generating loan growth as loans provide the greatest return to the Company. Management also maintains securities at a dollar level adequate enough to provide ample liquidity and cover pledging requirements.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net interest income was positively impacted by a decline in the average cost of interest-bearing liabilities, particularly with the Company’s core deposit segments that include negotiable order of withdrawal (“NOW”), savings and money market accounts. Interest expense was significantly impacted by a decrease in the average costs of this core group of interest-bearing liabilities, particularly savings and money market accounts. This is largely due to the short-term rate cuts made by the FRB in March 2020 that influenced the repricings of various deposit products and drove down average costs. This caused the average cost of savings and money market accounts to decrease from 0.55% in 2019 to 0.36% in 2020, which led to a $469 decrease in interest expense during 2020. However, customer deposits increased during 2020 within these core deposit segments impacted by stimulus relief monies and a consumer preference to preserve these customer deposit proceeds during the pandemic. As a result, average balances during 2020 increased 8.8% within NOW accounts and 9.3% within savings and money market accounts, altogether representing 63.4% of average interest-bearing liabilities in 2020, as compared to 60.5% in 2019.

Lower interest rates also had a significant impact on time deposits during 2020, particularly CD balances. The average cost of time deposits decreased 20 basis points from 1.95% in 2019 to 1.75% in 2020, which contributed to a $427 decrease in interest expense for the year. Short-term rate decreases from 2019 and 2020 have had an impact on lowering CD rate offerings, which has generated less consumer demand for CD products. As a result, the average time deposit segment decreased $3,469, or 1.6%, during 2020, which led to a decrease in the composition of average time deposits from 32.6% of interest-bearing liabilities at year-end 2019 to 30.8% at year-end 2020.

In addition, the Company’s other borrowings and subordinated debentures collectively decreased $5,434, or 11.9%, during 2020. The decrease was related to the principal repayments applied to various FHLB advances. Borrowings and subordinated debentures continue to represent the smallest composition of average interest-bearing liabilities, finishing at 5.9% and 7.0% at the end of 2020 and 2019, respectively.

Comparing 2019 to 2018, net interest income totaled $43,481 on an FTE basis in 2019, down $691, or 1.6%, from 2018. This negative change reflects the impact of a 3.2% decrease in average earning assets and a 27 basis point increase in average interest-bearing liabilities, partially offset by a 28 basis point increase in earning asset yield. The drop in average earning assets included a $35,973, or 37.2%, year-over-year decrease in average interest-bearing balances with other banks. Market rate increases during 2018 had a corresponding effect on average deposit costs, primarily within time and money market deposits. The rate increases in time deposits during 2018 contributed to a higher consumer demand for CDs, which generated most of the increase in average interest-bearing liabilities. Consumer depositors also migrated to higher-costing money market accounts, which contributed to higher average costs within that deposit segment. Elevated earning asset yields were also impacted by the rise in short-term rates during 2018, which affected loans and deposits with other banks. The net interest margin increase reflected a 27 basis point negative impact in funding costs, which were completely offset by a 28 basis point positive impact from the mix and yield on earning assets and a 7 basis point increase in the benefit from noninterest-bearing funding (i.e., demand deposits and shareholders’ equity).

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net interest income decreased in 2019 primarily due to the decrease in average volume of earning assets plus the increase in average cost of interest-bearing liabilities, partially offset by the increase in average earning asset yield. The volume decrease in average earning assets was responsible for lowering FTE interest income by $568 in 2019, while the average cost increase in average interest-bearing liabilities generated an additional $1,784 in interest expense during the same periods. These effects were partially offset by $1,671 in additional FTE interest income from the average earning asset yield increase. Average earning assets for 2019 decreased $32,338, or 3.2%, from the prior year, mostly from interest-bearing balances with other banks. The average volume on interest-bearing balances with other banks contributed most to the $374 decrease in interest income from these earning asset deposits during 2019. Balances within interest-bearing deposits with other banks are driven primarily by the Company’s interest-bearing Federal Reserve clearing account. The Company utilizes its Federal Reserve clearing account to fund earning asset growth and, prior to 2019, utilized such account to manage seasonal tax refund deposits. The processing of tax refund items prior to 2019 generated a stable source of income, as the Company would experience significant levels of excess funds impacted by the large volume of ERC/ERD transactions that were maintained within its Federal Reserve clearing account. The Bank acted as the facilitator for these ERC/ERD transactions and earned a fee for each cleared item. For the short time the Bank held such refunds, constituting noninterest-bearing deposits, the Bank would increase its deposits with the Federal Reserve. As previously mentioned, the Bank’s third-party tax refund product provider ceased utilizing the services of the Bank at the end of 2018. This absence of seasonal excess funds from no tax processing activity in 2019 led to a 39.0% decrease in average Federal Reserve clearing account balances, which contributed to lower interest income. Further limiting the interest income generated by the clearing account was a reduction in short-term interest rates during 2019. In 2018, the FRB increased short-term rates by 100 basis points, which increased the interest rate on this clearing account from 1.50% to 2.50% at year-end 2018. Despite having lower average balances entering 2019, the average yield on this clearing account was up over the prior year. Beginning in August 2019, the FRB reduced short-term interest rates by 25 basis points for three consecutive months, lowering the clearing account interest rate to 1.75% at October 2019. As a result, the average yield factor on interest-bearing balances with other banks had less of an impact to 2019’s earnings, growing interest income by an additional $325 in 2019, as compared to $674 in additional interest income during 2018. The volume decrease of the Bank’s Federal Reserve clearing account in 2019 led to a lower composition of average interest-bearing balances with other banks, finishing at 6.3% of average earning assets in 2019, as compared to 9.7% in 2018.

Net interest income was positively impacted by the Company’s loan portfolio, particularly with the change in average yield. The rise in short-term rates during 2018 had a direct impact on the repricings of a portion of the Company’s loan portfolio that improved earnings in 2019. This increased the average loan yield by 16 basis points to 5.94% at year-end 2019, as compared to 5.78% at year-end 2018, and also contributed to $1,283 in additional FTE interest income during 2019 over 2018. The Company also experienced average loan growth, which increased $1,865, or 0.2%, during 2019. This growth came mostly from the residential and commercial real estate loan segments. The impact from the average volume growth in loans contributed to $108 in additional FTE interest income during 2019 over 2018. While average loans were up only modestly in 2019, the Company also experienced a large decline in excess fund balances being maintained within the Federal Reserve clearing account. As a result, the Company finished with a larger composition of average loans to average earning assets at year-end 2019 of 80.4%, as compared to 77.6% for 2018.

Average securities of $128,391 at year-end 2019 represented a 1.4% increase from $126,621 at year-end 2018. Average taxable securities in 2019 increased 2.8% over the prior year, primarily as a result of purchases within the agency mortgage-backed investment segment, while average tax exempt securities were down 12.0% from the prior year, largely related to maturities of state and municipal investments. The purchases of new taxable securities combined with the significant decrease in average interest-bearing balances with other banks contributed to a higher asset composition of average securities in 2019, finishing at 13.3% of average earning assets at year-end 2019, as compared to 12.7% at year-end 2018. Management continues to focus on generating loan growth as loans provide the greatest return to the Company. Management also maintains securities at a dollar level adequate to provide ample liquidity and to cover pledging requirements.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME

	December 31
Table I	2020								2019								2018
(dollars in thousands)	Average Balance			Income/<br><br> <br>Expense		Yield/<br><br> <br>Average			Average Balance			Income/<br><br> <br>Expense		Yield/<br><br> <br>Average			Average Balance			Income/<br><br> <br>Expense		Yield/<br><br> <br>Average
Assets
Interest-earning assets:
Interest-bearing balances with banks	$	78,211		$	274		0.35	%	$	60,796		$	1,272		2.09	%	$	96,769		$	1,646		1.70	%
Securities:
Taxable		118,090			2,409		2.04			117,530			2,935		2.50			114,278			2,817		2.46
Tax exempt		9,231			359		3.90			10,861			432		3.98			12,343			464		3.76
Loans		811,434			43,571		5.37			775,860			46,107		5.94			773,995			44,716		5.78
Total interest-earning assets		1,016,966			46,613		4.58	%		965,047			50,746		5.26	%		997,385			49,643		4.98	%
Noninterest-earning assets:
Cash and due from banks		13,619								12,259								13,027
Other nonearning assets		73,395								65,397								60,825
Allowance for loan losses		(7,789	)							(7,473	)							(7,981	)
Total noninterest-earning assets		79,225								70,183								65,871
Total assets	$	1,096,191							$	1,035,230							$	1,063,256
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
NOW accounts	$	177,170		$	618		0.35	%	$	162,910		$	538		0.33	%	$	162,899		$	508		0.31	%
Savings and money market		258,434			932		0.36			236,496			1,290		0.55			235,992			657		0.28
Time deposits		211,909			3,704		1.75			215,378			4,198		1.95			209,714			2,990		1.43
Other borrowed money		31,916			729		2.28			37,350			883		2.37			40,467			986		2.44
Subordinated debentures		8,500			208		2.44			8,500			356		4.18			8,500			330		3.89
Total int.-bearing liabilities		687,929			6,191		0.90	%		660,634			7,265		1.10	%		657,572			5,471		0.83	%
Noninterest-bearing liabilities:
Demand deposit accounts		258,802								235,616								278,034
Other liabilities		18,422								16,666								15,257
Total noninterest-bearing liabilities		277,224								252,282								293,291
Shareholders’ equity		131,038								122,314								112,393
Total liabilities and shareholders’ equity	$	1,096,191							$	1,035,230							$	1,063,256
Net interest earnings				$	40,422							$	43,481							$	44,172
Net interest earnings as a percent of interest-earning assets							3.97	%							4.51	%							4.43	%
Net interest rate spread							3.68	%							4.16	%							4.15	%
Average interest-bearing liabilities to average earning assets							67.65	%							68.46	%							65.93	%

Fully taxable equivalent yields are reported for tax exempt securities and loans and calculated assuming a 21% tax rate, net of nondeductible interest expense. Tax-equivalent adjustments for securities during the years ended December 31, 2020, 2019 and 2018 totaled $73, $88, and $95, respectively. Tax-equivalent adjustments for loans during the years ended December 31, 2020, 2019 and 2018 totaled $367, $341, and $351, respectively. Average balances are computed on an average daily basis. The average balance for available for sale securities includes the market value adjustment. However, the calculated yield is based on the securities’ amortized cost. Average loan balances include nonaccruing loans. Loan income includes cash received on nonaccruing loans.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE

Table II

(dollars in thousands)	2020									2019
	Increase (Decrease)<br><br> <br>From Previous Year Due to									Increase (Decrease)<br><br> <br>From Previous Year Due to
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
Interest income
Interest-bearing balances with banks	$	287		$	(1,285	)	$	(998	)	$	(699	)	$	325		$	(374	)
Securities:
Taxable		14			(540	)		(526	)		81			37			118
Tax exempt		(64	)		(9	)		(73	)		(58	)		26			(32	)
Loans		2,048			(4,584	)		(2,536	)		108			1,283			1,391
Total interest income		2,285			(6,418	)		(4,133	)		(568	)		1,671			1,103
Interest expense
NOW accounts		49			31			80			----			30			30
Savings and money market		111			(469	)		(358	)		2			631			633
Time deposits		(67	)		(427	)		(494	)		83			1,125			1,208
Other borrowed money		(125	)		(29	)		(154	)		(75	)		(28	)		(103	)
Subordinated debentures		----			(148	)		(148	)		----			26			26
Total interest expense		(32	)		(1,042	)		(1,074	)		10			1,784			1,794
Net interest earnings	$	2,317		$	(5,376	)	$	(3,059	)	$	(578	)	$	(113	)	$	(691	)

The change in interest due to volume and rate is determined as follows: Volume Variance - change in volume multiplied by the previous year's rate; Yield/Rate Variance - change in rate multiplied by the previous year's volume; Total Variance – change in volume multiplied by the change in rate. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. The tax exempt securities and loan income is presented on an FTE basis. FTE yield assumes a 21% tax rate, net of related nondeductible interest expense.

Net interest income in 2019 was negatively impacted by an increase in the average cost of interest-bearing liabilities, particularly time deposits. With higher average year-to-date loans compared to 2018, the Company utilized more CD balances as a funding source to help keep pace with earning assets. Short-term rate increases from 2018 have had an impact on the repricing of CD rates and have generated more consumer demand for CD products. The average cost of time deposits increased 52 basis points from 1.43% in 2018 to 1.95% in 2019, which generated $1,125 in additional interest expense for the year. To a smaller extent, the volume impact from average time deposit growth of $5,664, or 2.7%, generated $83 in additional interest expense for the year. The growth in time deposits led to an increase in the composition of average time deposits to interest-bearing liabilities from 31.9% at year-end 2018 to 32.6% at year-end 2019.

The Company’s core deposit segment of interest-bearing liabilities consists of NOW, savings and money market accounts. During 2019, average balances on these deposits remained relatively stable, increasing $515, or 0.1%, and together, these deposits represented 60.5% of average interest-bearing liabilities in 2019, as compared to 60.7% in 2018. As a result, the impact to interest expense from this stable movement of average balances was minimal. However, interest expense was significantly impacted by an increase in the average costs of this core group of interest-bearing liabilities, particularly money market accounts. In the fourth quarter of 2018, the Company’s Prime Investment money market product was introduced in an effort to attract new deposits. The account offers a more competitive rate that is higher than the Company’s prior money market account. In addition to attracting new deposits, existing savings and money market accounts have migrated to the new product. This caused the average cost of savings and money market accounts to increase from 0.28% in 2018 to 0.55% in 2019, which generated $631 in additional interest expense for the year.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition, the Company’s other borrowings and subordinated debentures collectively decreased $3,117, or 6.4%, during 2019. The decrease was related to the principal repayments applied to various FHLB advances. Borrowings and subordinated debentures continue to represent the smallest composition of average interest-bearing liabilities, finishing at 7.0% and 7.5% at the end of 2019 and 2018, respectively.

During 2020, total interest income on average earning assets decreased $4,133, or 8.1%, compared to 2019. During 2019, total interest income on average earning assets increased $1,120, or 2.3%, compared to 2018. The contrasting differences in interest income during 2020 and 2019 were largely the result of a decline in market rates during the second half of 2019 and in March 2020. The Company’s interest and fees from its consumer portfolio decreased $1,726, or 14.3%, during 2020, and increased $247, or 2.1%, during 2019. The change in 2020 was impacted by lower consumer loan yields impacted by the low rate environment and a 5.2% decrease in average consumer loans, which was primarily attributable to the automobile and home equity line segments. Further contributing to lower consumer loan revenue in 2020 was a $922 decrease in fee income. This was primarily due to a change in the Company’s business model with Loan Central that was necessary to comply with new regulations, which resulted in Loan Central not assessing any loan fees for tax refund loan advances during 2020. Rather, Loan Central began assessing a fee for preparing a tax return in combination with a reduced loan fee. The fee income for preparing the tax return was recorded as noninterest income. The change in 2019 was impacted mostly by average balance growth associated with increased home equity loan balances, as well as all-terrain and recreational vehicle loan financings.

The Company’s interest and fees from its commercial loan portfolio decreased by $157, or 0.8%, during 2020, but increased $846, or 4.4%, during 2019. The change in 2020 was impacted by lower commercial loan yields that completely offset the positive impacts of higher average commercial loan balances and higher commercial loan fees during 2020. Commercial loan yields were negatively impacted by the low rate environment in 2020. Average commercial loans grew by 17.2% and came primarily from $35,141 in PPP loan originations as part of the government’s relief program for businesses impacted by COVID-19. Loan fees of $1,175 were collected from the SBA during 2020, of which, $705 were recorded to income as part of the PPP loan program. While PPP loans contributed to higher commercial loan balances, they also had a dilutive effect on loan yields as a result of the 1% interest rate associated with each loan. The change in 2019 was impacted mostly by improved asset yields as a result of the rise in interest rates in 2018. The earnings from elevated commercial loan yields in 2019 completely offset a decrease in average commercial loan balances in 2019, which were down 0.6% from 2018.

The Company’s interest and fees from its residential real estate loan portfolio decreased by $679, or 5.0%, during 2020, but increased $308, or 2.3%, during 2019. The change in 2020 was impacted by lower residential real estate loan yields that completely offset higher loan fees. Residential real estate loan yields were negatively impacted by the low rate environment in 2020. The impact of lower loan yields completely offset a $132 increase in loan fees during 2020. Higher loan fees were largely the result of loan modifications that were generated under the CARES Act. Average residential real estate loan balances during 2020 were largely comparable to 2019. The Company experienced average residential real estate loan growth from the Bank's warehouse lending volume. Warehouse lending consists of a line of credit provided by the Bank to another mortgage lender that makes loans for the purchase of one- to four-family residential real estate properties. The mortgage lender eventually sells the loans and repays the Bank. Average warehouse lending balances increased from $22,029 in 2019 to $25,110 in 2020. Positive earnings from higher warehouse lending volume was completely offset by decreases in other residential real estate assets. The low interest rate environment in 2020 caused a significant amount of mortgage refinancings to occur. As a result, the Company experienced a portfolio shift from payoffs and maturities within its long-term fixed-rate mortgages to new short-term adjustable-rate mortgages during 2020. Furthermore, the Company sold a portion of its long-term, fixed-rate real estate loans to the Federal Home Loan Mortgage Corporation, while retaining the servicing rights for those mortgages. This strategy was successful in generating a significant amount of loan sale and servicing fee revenue within noninterest income during 2020. The change in 2019 was largely due to a $13,765 average balance increase in warehouse lending balances, which completely offset the negative effects from decreases in long-term fixed-rate mortgages and short-term adjustable-rate mortgages.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s interest income from taxable investment securities decreased $526, or 17.9%, in 2020 and $118, or 4.2%, in 2019. Average balances grew during both 2020 and 2019 from increased purchases of U.S. Government sponsored entity securities and Agency mortgage-backed securities. Interest income on taxable securities was negatively affected by a 46 basis point decrease in yield from 2019 to 2020, primarily due to investment purchases and reinvestment of maturities at market rates lower than the average portfolio yield. Market rates in 2020 were influenced by the short-term rate decreases in March 2020 in response to COVID-19. For 2019, interest income on taxable securities was positively affected by a 4 basis point increase in yield from 2018.

Total interest expense incurred on the Company’s interest-bearing liabilities decreased $1,074, or 14.8%, during 2020, but increased $1,794, or 32.8%, in 2019. The contrasting differences in interest expense during 2020 and 2019 were largely the result of a decline in market rates during the second half of 2019 and in March 2020. The Company’s strategy continues to focus on funding earning asset growth with lower cost, core deposit funding sources to further reduce, or limit growth in, interest expense. With the FRB’s action to reduce short-term rates in 2019 and 2020, the Bank saw many of its interest-bearing deposit products reprice downward. This led to a decrease in the Company’s weighted average costs from 1.10% at year-end 2019 to 0.90% at year-end 2020. However, the pace of interest expense savings has slowed due to a lag in repricing on deposits. Given the Company’s asset-sensitivity, decreases in short-term interest rates have had a negative impact on net interest income in that interest-earning assets have repriced faster than interest-bearing liabilities. This caused a lagging effect during most of 2020 on the impact that decreasing market rates have had on reducing deposit expense, particularly with CDs. Since CD rates have repriced downward, the Company will benefit from lower interest expense only to the extent that new CDs at lower rates can be issued. Lower rates on deposits contributed to less of a consumer demand for CDs in 2020, which caused a shift into more NOW, savings and money market balances and less time deposit balances. In addition to the effects from lower market rates, the composition shift from higher-costing CDs to lower-costing NOW, savings and money market accounts helped reduce the Company’s interest expense during 2020. During 2019, the change in interest expense was impacted by the improvement in average loan balances, and as a result, the Company utilized more CD balances as a funding source. In addition, market rates on the Company’s CDs in 2019 repriced at higher rates as a result of the short-term rate increases in 2018, which contributed to more consumer demand for CDs during both 2018 and 2019. The Company also experienced a composition shift within its money market portfolio, which led to higher interest expense. This was impacted by the new Prime Investment money market product that was introduced in the fourth quarter of 2018. Consumers migrated to this new product in 2019 due to the fact that the new account offered a more competitive rate. Although the composition of average interest-bearing deposits consists mostly of lower-costing NOW, savings and money market balances, the Company’s weighted average costs still increased in 2019. This was primarily from an increasing consumer demand of higher-costing CDs and a composition shift to the new higher-costing money market deposit product. These factors contributed to an increase in the Company’s weighted average cost from 0.83% at year-end 2018 to 1.10% at year-end 2019.

The Company’s interest expenses were also impacted by other borrowed money and subordinated debentures, which were down collectively by $302, or 24.4% during the year ended 2020, and $77, or 5.9%, during the year ended 2019. The decreases were primarily from the average balance decrease in FHLB borrowings caused by principal repayments during both 2019 and 2020, and the average cost decrease of subordinated debentures during 2020.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During 2020, the Company’s net interest margin was negatively impacted by the decreasing market rates that contributed to lower earning asset yields during that same period. Interest rates were reduced in the first quarter of 2020 primarily as a result of the growing concern that COVID-19 would have a significant negative impact on the economy. The margin was also negatively impacted by a larger amount of excess deposits being maintained at the Federal Reserve yielding below 0.25%. Furthermore, the Company’s ability to reduce deposit expenses in a low rate environment was limited for most of 2020 by a lagging effect in CD rates. These factors contributed to a decline in the net interest margin from 4.51% in 2019 to 3.97% in 2020. During 2019, the Company’s net interest margin benefited from a smaller composition of interest-bearing balances being maintained at the Federal Reserve yielding just 1.75%. In prior years, the higher balances being maintained at the Federal Reserve diluted the net interest margin due to the yield on those balances being less than other earning assets, such as loans and securities. In 2019, the Company also maintained most of its deposit mix in lower-cost core deposits. These factors were key to completely offsetting the negative impacts of growing interest costs associated with CDs and money market accounts. This contributed to net interest margin improvement from 4.43% in 2018 to 4.51% in 2019. Although the lagging effect of reducing CD expense was evident for most of 2020, average CD rates have decreased more steadily during the fourth quarter of 2020 and into 2021. Furthermore, the Company’s PPP loan originations that carry a 1% contract rate have continued to payoff, resulting in higher loan fees and less of a dilutive effect to the margin. The Company’s primary focus is to invest its funds into higher-yielding assets, particularly loans, as opportunities arise. However, if loan balances do not continue to expand and remain a larger component of overall earning assets, the Company will face pressure within its net interest income and margin improvement.

PROVISION EXPENSE

Credit risk is inherent in the business of originating loans. The Company sets aside an allowance for loan losses through charges to income, which are reflected in the consolidated statement of income as the provision for loan losses. Provision for loan loss is recorded to achieve an allowance for loan losses that is adequate to absorb losses in the Company’s loan portfolio. Management performs, on a quarterly basis, a detailed analysis of the allowance for loan losses that encompasses loan portfolio composition, loan quality, loan loss experience and other relevant economic factors.

The Company’s provision expense during the years ended 2020, 2019 and 2018 totaled $2,980, $1,000 and $1,039, respectively. These results yielded a $1,980 increase in provision expense from 2019 to 2020, and a $39 decrease in provision expense from 2018 to 2019. Provision expense was up in 2020 in large part to the addition of a new risk reserve allocation in March 2020 for COVID-19. The risk factor was necessary to account for the changes in economic conditions resulting from increases in unemployment that would produce higher anticipated losses as a result of COVID-19. Given that the economic scenarios had deteriorated significantly since the pandemic was declared in early March, it was determined the credit risk in the loan portfolio had increased, resulting in the need for an additional reserve for credit loss. As a result, the general reserve allocation related to COVID-19 totaled $2,315 at December 31, 2020, which had a corresponding impact to provision expense. While the Company has yet to experience any significant charge-offs related to COVID-19, the continued uncertainty regarding the severity and duration of the pandemic and related economic effects will continue to impact the Company’s estimate of its allowance for loan losses and resulting provision expense.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Provision expense was further impacted by a $134, or 9.2%, increase in net-charge offs during 2020 on loans that had not already been specifically allocated for in prior years. Gross charge-offs totaled $3,033 during 2020, a decrease of $2,059 compared to 2019. Gross charge-offs during 2020 included $502 that had been previously allocated for in 2019 and did not require corresponding provision expense in 2020. The decrease in gross charge-offs came primarily from losses recorded on one commercial and industrial loan relationship in September 2019. Gross recoveries decreased $2,695 during 2020, primarily from two large commercial real estate recoveries in December 2019.

Excluding the risk factors from COVID-19, the Company also recognized additional provision expense from general allocations during 2020. The Company’s general allocation evaluates several factors that include: loan volume, average historical loan loss trends, credit risk, regional unemployment conditions, asset quality, and changes in classified and criticized assets. Provision expense increases arising from general allocations were mostly impacted by an increase in loan balances during 2020. The Company’s average earning assets grew 5.4% in 2020, largely from a $35,574 increase in average loans. The risk associated with growth in loans generated higher general reserves and a corresponding increase to provision expense. Further contributing to higher provision expense was an increase in the Company’s historical loan loss factor, which trended upward from 0.23% at year-end 2019 to 0.24% at year-end 2020. Partially offsetting these effects from loan growth and historical loss were improvements resulting from lower classified assets and nonperforming levels that yielded less general allocation provision during 2020. Lower classified loans were largely impacted by the commercial loan portfolio, with classified balances decreasing $11,024, or 52.4%, from year-end 2019 to year-end 2020. Furthermore, the Company’s nonperforming loans to total loans were 0.82% at year-end 2020, as compared to 1.30% at year-end 2019, while nonperforming assets to total assets were 0.59% at year-end 2020 and 1.04% at year-end 2019.

Partially offsetting the increasing effects to provision expense mentioned above were lower specific allocations. Specific allocations of the allowance for loan losses identify loan impairment by measuring fair value of the underlying collateral and the present value of estimated future cash flows. When re-evaluating impaired loan balances to their corresponding collateral values at December 31, 2020, the Company identified no impairment for which a specific allocation was necessary. This is compared to an $807 specific allocation that was needed to fund the allowance for loan losses at December 31, 2019, within the commercial real estate, commercial and industrial, and consumer loan segments. This reserve allocation was impacted mostly by two impaired loan relationships and required a corresponding increase to provision for loan losses expense during 2019.

The provision expense in 2019 was comparable to 2018 largely due to the increase in specific allocations being offset by decreases in net charge-offs, general allocations and a decline in loan balances. When re-evaluating impaired loan balances to their corresponding collateral values at December 31, 2019, a specific allocation of $807 was needed to fund the allowance for loan losses within the commercial real estate, commercial and industrial, and consumer loan segments. This reserve allocation was impacted mostly by two impaired loan relationships and required a corresponding increase to provision for loan losses expense. As a result, specific allocations increased by $709 from year-end 2018 to year-end 2019.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The increase in specific reserves during 2019 was partially offset by a $354, or 19.6%, decrease in net-charge offs. Gross charge-offs increased $1,492 during 2019, primarily from charge-offs recorded on one commercial and industrial loan relationship in September 2019. Gross recoveries increased $1,846 during 2019, primarily from two large commercial real estate recoveries in December 2019.

Further offsetting the impact of higher specific reserves in 2019 was lower general allocations. At December 31, 2019, general allocations decreased $1,165, or 17.6%, from $6,630 at December 31, 2018, to $5,465 at December 31, 2019. In association with heightened recoveries, the Company’s average historical loan loss factors continued to trend down in 2019, while its criticized asset risk factor decreased, as well. This, combined with a general decline in loan portfolio balances, contributed to lower general allocations at year-end 2019. Partially offsetting these positive factors to general reserves were increases in classified assets and nonperforming levels. The Company’s nonperforming loans to total loans were 1.30% at year-end 2019, compared to 1.25% at year-end 2018, while nonperforming assets to total assets were 1.04% at year-end 2019 and 0.99% at year-end 2018. The reduction in general reserves contributed to lower provision expense during 2019, as compared to 2018.

Management believes that the allowance for loan losses was adequate at December 31, 2020, and reflected probable incurred losses in the portfolio. The allowance for loan losses was 0.84% of total loans at December 31, 2020, as compared to 0.81% at December 31, 2019, and 0.87% at December 31, 2018. There can be no assurance, however, that adjustments to the allowance for loan losses will not be required in the future. Changes in the circumstances of particular borrowers, as well as adverse developments in the economy, particularly with respect to COVID-19, could cause further increases in the required allowance for loan losses and require additional provision expense. Asset quality will continue to remain a key focus, as management continues to stress not just loan growth, but quality in loan underwriting as well. Future provisions to the allowance for loan losses will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail below under the caption “Critical Accounting Policies - Allowance for Loan Losses” within this Management’s Discussion and Analysis.

NONINTEREST INCOME

During 2020, total noninterest income increased $2,272, or 24.8%, as compared to 2019. The increase in noninterest revenue was primarily impacted by proceeds of $2,000 received in a litigation settlement with a third-party tax software product provider.

Noninterest revenue improvement was also driven by higher mortgage banking income affected by an increase in the volume of real estate loans sold to the secondary market. To help manage consumer demand for longer-termed, fixed-rate real estate mortgages during the year ended 2020, the Company sold a portion of the real estate loans it originated during that period. The decision to sell long-term fixed-rate mortgages at lower rates also helps to minimize the interest rate risk exposure to rising rates. During 2020, the Company experienced an increase in the number of loans sold to the secondary market by 177 loans, as compared to 2019. This generated an increase in mortgage banking income of $944 during the year ended 2020, as compared to the same period in 2019.

Noninterest income was also positively impacted in 2020 by an increase in the Company’s tax preparation fee income. As previously discussed, the Company changed its business model in 2020 from assessing TAL fees to now assessing tax preparation fees in response to a state law enacted in 2019. By charging for the tax preparation services, the Company recorded $644 in tax preparation fee income during the year ended December 31, 2020.

Partially offsetting these positive contributors to noninterest income in 2020 was a net gain on the sale of the Company’s Mount Sterling and New Holland, Ohio branches recorded in 2019. The Company sold both branches to North Valley Bank on December 6, 2019, which yielded a net gain of $1,256. This gain was related to a 5% premium on the deposits that were sold.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Also negatively impacting noninterest income during 2020 were lower service charges on deposits. The Company recorded $1,685 in service charge fees during 2020, compared to $2,118 in service charge fees during 2019, a decrease of $433, or 20.4%. This was largely due to growing economic uncertainties and lower overdraft fees impacted by economic stimulus proceeds received by customers in connection with COVID-19.

The Company’s remaining noninterest income categories increased $373, or 6.8%, during the year ended 2020 as compared to 2019. This was in large part due to a $222 increase in interest rate swap revenue impacted by higher fees from increased originations in 2020. The Company utilizes interest rate swaps to satisfy the desire of large commercial customers to have a fixed-rate loan while permitting the Company to originate a variable-rate loan, which helps mitigate interest rate risk. Also increasing noninterest income was interchange income, up $126 from 2019 to 2020, as the volume of transactions and new card issuances of the Company’s debit card products continued to grow. The Company also experienced a $116 increase in income from bank owned life insurance (“BOLI”) and annuity assets during 2020, in large part to new BOLI issuances that contributed to a $5,403 increase in BOLI and annuity plan balances.

During 2019, total noninterest income increased $228, or 2.6%, as compared to 2018. The increase in noninterest revenue was primarily impacted by a net gain on the sale of the Company’s Mount Sterling and New Holland, Ohio branches.

Also contributing to the increase in noninterest income were lower losses on OREO properties, which finished with a net loss of $65 at year-end 2019, as compared to a net loss of $559 at year-end 2018. OREO losses were elevated in 2018 mostly from the liquidation of one foreclosed land development property during the fourth quarter of 2018 that resulted in a loss on sale of $594.

Noninterest income was also positively impacted in 2019 by an increase in the Company’s interchange income, as the volume of transactions and new card issuances of its debit and credit card products continue to grow. The Company has also been successful in promoting the use of both debit and credit cards by offering incentives that permit their users to redeem accumulated points for merchandise, as well as cash incentives. As a result, debit and credit card interchange income increased $243, or 6.6%, during 2019, as compared to 2018. While incenting debit and credit card customers has increased customer use of electronic payments, which has contributed to higher interchange revenue, the strategy also fits well with the Company's emphasis on growing and enhancing its customer relationships.

Partially offsetting these positive contributors to noninterest income in 2019 was a reduction in seasonal tax refund processing revenue classified as ERC/ERD fees. During the year ended 2019, the Company’s ERC/ERD fees decreased by $1,574, or 99.7%, compared to 2018. As previously mentioned, the Bank’s third-party tax refund product provider ceased utilizing the services of the Bank at the end of 2018.

The Company’s remaining noninterest income categories were down $191, or 4.5%, during the year ended 2019 compared to 2018. This was in large part due to a $114 decrease in overdraft income in 2019 impacted by a lower volume of non-sufficient fund activity. Furthermore, interest rate swap revenue decreased $84 in 2019 due to lower fees resulting from a large origination in 2018. The Company utilizes interest rate swaps to satisfy the desire of large commercial customers to have a fixed-rate loan while permitting the Company to originate a variable-rate loan, which helps mitigate interest rate risk. In association with establishing an interest rate swap agreement, the Company earns a swap fee at the time of origination. The dollar amount of originations decreased during 2019, causing lower fee revenue.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NONINTEREST EXPENSE

Management continues to work diligently to minimize noninterest expense. For 2020, total noninterest expense decreased $3,365, or 8.5%, as compared to 2019. The decrease was mostly from salaries and employee benefits, the Company’s largest noninterest expense item. During the year ended December 31, 2020, salaries and employee benefits decreased $1,888, or 8.0%, compared to 2019. During the fourth quarter of 2019, the Company offered a voluntary severance package to select employees meeting certain criteria. Those that accepted the early retirement package retired effective December 31, 2019. In connection with this severance package, the Company incurred a one-time expense of $1,507 in December 2019, which was primarily responsible for the decline in personnel expense in 2020. Furthermore, the Company realized additional savings in salaries and employee benefit expense during 2020 due to a lower number of employees as a result of the voluntary severance program and the sale of two branches in December 2019. The Company’s full-time equivalent employee base decreased from 284 employees at year-end 2019 to 264 employees at year-end 2020. This cost savings more than offset the expenses associated with annual merit increases and higher insurance expense.

The Company also experienced a decrease in professional fees, which lowered by $989, or 39.4%, during 2020, as compared to 2019. The decrease in professional fees was affected by lower litigation costs associated with the Bank’s lawsuit against the third-party tax software product provider. As previously discussed, a settlement was reached with the third-party during the first quarter of 2020, which contributed to lower legal costs. Furthermore, the number of bankruptcy-related loan cases has decreased significantly due to the effects of COVID-19, which has shut down municipal courts at various times during the pandemic. Additionally, the Company incurred lower audit-related expenses during 2020. This was related to costs from 2019 associated with the “expected loss” allowance model that the Company was prepared to adopt in 2020. In the fourth quarter of 2019, it was announced this required accounting guidance would be delayed until 2023 for smaller reporting companies.

Lower software costs also reduced noninterest expense by $251, or 14.7%, during 2020, compared to 2019. This was largely impacted by the disposal of various pieces of incompatible software during the fourth quarter of 2019.

Also contributing to lower noninterest expense was the Company’s marketing costs, which decreased $228, or 27.1%, during 2020 compared to 2019. With COVID-19 significantly disrupting consumer behavior, and with banking center lobbies being limited or closed, the opportunities to advertise and promote the brand of the Company were limited in 2020. The pandemic environment, consisting of social distancing, self-quarantining and remote working arrangements, slowed many of the marketing goals that were set in 2020, which led to lower expense.

The remaining noninterest expense categories decreased $9, or 0.1%, during the year-ended 2020, as compared to 2019. This net decrease was impacted by various activities, including intangible expense (down $144) and, foreclosed asset costs (down $138), which were partially offset by data processing expense (up $174), and occupancy/furniture and equipment costs (up $82). The elimination of the core deposit intangible amount associated with the two branches that were sold in December 2019 caused intangible expense to decrease in 2020. Foreclosure expense decreased in relation to the pandemic environment of 2020. The increase in data processing expense was primarily due to a $186 expense associated with the platform used to facilitate PPP loans during the second quarter of 2020. Occupancy/furniture and equipment expense increased primarily due to an increase in depreciable assets during 2020.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Total noninterest expense in 2019 increased $2,072, or 5.5%, compared to 2018. The increase was mostly attributable to salaries and employee benefits, the Company’s largest noninterest expense item. During the year ended December 31, 2019, salaries and employee benefits increased $1,333, or 6.0%, compared to the same period in 2018. As previously mentioned, the Company offered a voluntary severance package to select employees during the fourth quarter of 2019, which led to the early retirements of various employees at December 31, 2019. The Company incurred a one-time expense of $1,507 in December 2019 in relation to the severance package payout. While the severance expense was a significant cost to the Company in 2019, it contributed to lower salaries and employee benefit costs in 2020. Absent the severance payout, salaries and employee benefit expense would have decreased in 2019, compared to 2018, primarily due to the lower number of employees in 2019, which more than offset the expenses associated with annual merit increases and higher insurance expense.

The Company also experienced an increase in professional fees, which grew $492, or 24.4%, during 2019, compared to 2018. The increase in professional fees was mostly affected by legal expenses associated with the Bank’s lawsuit against the third-party tax software product provider related to the early termination of the Bank’s tax refund processing contract.

Noninterest expense was also negatively affected by higher software costs, which increased $172, or 11.2%, during 2019, as compared to 2018. This was largely impacted by the disposal of various pieces of incompatible software during the fourth quarter of 2019.

Partially offsetting the increase in noninterest expense in 2019 were lower FDIC premiums. FDIC premium expense decreased $334, or 74.7%, during 2019, as compared to 2018. The decrease in premium expense was primarily related to lower assessment rates in 2019. FDIC assessments were further reduced by the FDIC crediting back a portion of the Bank’s premium because the Deposit Insurance Fund (“DIF”) exceeded the statutory minimum of 1.35%. As a result, the FDIC issued credits to banks with assets of less than $10 billion. The credits were based on the portion of bank assessments that had contributed to the DIF reaching 1.35%. The FDIC calculated the Bank’s associated credit to be $253. In September and December 2019, the Bank was able to utilize $138 of its FDIC credit to fully absorb its third and fourth quarter 2019 FDIC assessments. The Bank utilized the remaining credits during its first and second quarter 2020 FDIC assessments.

Data processing expenses also provided cost savings to the Company’s overhead, decreasing $119, or 5.6%, in 2019, as compared to 2018. The impact was primarily from nonrecurring transition costs associated with changing debit card processing providers in 2018.

Other noninterest expenses increased $311, or 6.0%, during 2019, as compared to 2018. This increase was impacted by various activities, including consulting fees (up $90), fraudulent expense (up $74), customer incentives (up $68), examination costs (up $38), and loan expense (up $29). Increases in consulting fees were largely associated with the branch sale of the Mount Sterling and New Holland offices. The increase in fraudulent expenses was primarily the result of increased consumer spending on retail transactions. Customer incentive costs continued to trend higher during 2019 as part of management’s emphasis on further building and maintaining core deposit relationships while increasing interchange revenue. Examination costs were impacted by an increase in annual assessments on Ohio-chartered banks during the second half of 2019, as well as higher trust department examination costs.

The remaining noninterest expense categories increased $217, or 5.5%, during the year-ended 2019, as compared to 2018. The increases were primarily from higher costs associated with occupancy, furniture and equipment, marketing and intangible amortization expense.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company's efficiency ratio is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income. The effects from provision expense are excluded from the efficiency ratio. Management continues to place emphasis on managing its balance sheet mix and interest rate sensitivity as well as developing more innovative ways to generate noninterest revenue. During 2020, the Company’s asset yields were negatively impacted by market rate reductions related to COVID-19, which led to a 7.1% decrease in net interest income. However, this was completely offset by a 24.8% increase in noninterest revenue, which was impacted by $2,000 in income from a litigation settlement and a $944 increase in mortgage banking fee income. Furthermore, the severance package offering and the sale of two branch offices in December 2019 contributed to an 8.0% decrease in personnel expense. This, combined with a $989 decline in professional fees, contributed to an 8.5% decrease in overhead expense during 2020. As a result, the Company’s efficiency number improved from 75.02% at December 31, 2019, to 69.67% at December 31, 2020. During 2019, the Company’s net interest income finished below the previous year primarily due to a decrease in average earning assets combined with higher deposit costs related to CDs and money market accounts. Furthermore, noninterest expenses increased 5.5%, outpacing the 2.6% growth in noninterest revenue. As a result, the Company's efficiency number increased (regressed) from 70.47% at December 31, 2018, to 75.02% at December 31, 2019.

PROVISION FOR INCOME TAXES

The provision for income taxes during 2020 totaled $2,048, compared to $1,813 in 2019 and $2,255 in 2018. The effective tax rates for 2020, 2019 and 2018 were 16.6%, 15.5% and 15.9%, respectively. The increase in the effective tax rate from 2019 to 2020 reflects additional costs associated with certain nondeductible retirement benefit plans. The change in the effective tax rate from 2018 to 2019 was minimal.

FINANCIAL CONDITION:

CASH AND CASH EQUIVALENTS

The Company’s cash and cash equivalents consist of cash, as well as interest- and non-interest bearing balances due from other banks. The amounts of cash and cash equivalents fluctuate on a daily basis due to customer activity and liquidity needs. At December 31, 2020, cash and cash equivalents had increased $85,947 to $138,303, compared to $52,356 at December 31, 2019. The increase in cash and cash equivalents came mostly from higher interest-bearing deposits on hand with correspondent banks. At December 31, 2020, the Company’s interest-bearing Federal Reserve clearing account represented over 87% of cash and cash equivalents. The Company utilizes its interest-bearing Federal Reserve clearing account to manage excess funds, as well as to assist in funding earning asset growth. The primary factor for the significant influx in clearing account balances was the investment of heightened deposit balances received during 2020 as a result of the pandemic environment. At December 31, 2020, total deposits increased $172,268 from year-end 2019 in relation to customers receiving stimulus funds from various government programs and their desire to preserve cash during this uncertain economic environment. Furthermore, commercial business customers received PPP loan proceeds as part of the government’s regulatory relief for COVID-19, which also generated higher levels of investable deposits during 2020. During the second half of 2019, the rate associated with the Company’s Federal Reserve clearing account decreased 75 basis points to 1.75% as a result of the FRB’s action to decrease short-term market rates. The FRB again reduced short-term rates by 150 basis points in March 2020 due to concerns about the impact of COVID-19 on the economy, resulting in a target federal funds rate range of 0% to 0.25%. Although interest-bearing deposits in the Federal Reserve are the Company's lowest-yielding interest-earning asset, the investment rate is higher than the rate the Company would have received from its investments in federal funds sold. Furthermore, Federal Reserve balances are 100% secured.

As liquidity levels continuously vary based on consumer activities, amounts of cash and cash equivalents can vary widely at any given point in time. The Company’s focus during periods of heightened liquidity will be to invest excess funds into longer-term, higher-yielding assets, primarily loans, when the opportunities arise. Further information regarding the Company’s liquidity can be found below under the caption “Liquidity” in this Management’s Discussion and Analysis.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CERTIFICATES OF DEPOSIT IN FINANCIAL INSTITUTIONS

At December 31, 2020, the Company had $2,500 in CDs owned by the Captive, up $140, or 5.9%, from year-end 2019. The deposits on hand at December 31, 2020, consist of eleven certificates with remaining maturity terms ranging from less than 3 months up to 29 months.

SECURITIES

Management's goal in structuring its investment securities portfolio is to maintain a prudent level of liquidity and to provide an acceptable rate of return without sacrificing asset quality. During 2020, the balance of total securities increased $4,991, or 4.3%, compared to year-end 2019. The Company’s investment securities portfolio is made up mostly of Agency mortgage-backed securities, representing 77.0% of total investments at December 31, 2020. During the year ended 2020, the Company invested $36,162 in new Agency mortgage-backed securities, while receiving principal repayments of $32,383. The monthly repayment of principal has been the primary advantage of Agency mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or at a specified call date. Security asset growth was partially offset by increased maturities and principal repayments associated with state and municipal securities, which decreased $2,013, or 16.7%, compared to year-end 2019.

In addition, decreasing market rates during 2020 led to a $2,415 increase in the net unrealized gain position associated with the Company’s available for sale securities, which increased the fair value of securities at December 31, 2020. The fair value of an investment security moves inversely to interest rates, so as rates decreased, the unrealized gain in the portfolio increased. These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity.

Maturing securities provided the Company with sufficient liquidity in 2019 and 2020 so as to obviate the need for other sources of fundraising, such as debt offerings.

Investment Portfolio Composition
at December 31, 2020	at December 31, 2019

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SECURITIES

Table III

	MATURING
As of December 31, 2020	Within<br><br> <br>One Year						After One but Within Five Years						After Five but Within Ten Years						After Ten Years
(dollars in thousands)	Amount			Yield			Amount			Yield			Amount			Yield			Amount			Yield
U.S. Government sponsored entity<br><br> <br>securities		$	4,612		2.56	%		$	8,531		2.25	%		$	5,010		0.75	%		$	----		----
Obligations of states and political<br><br> <br>subdivisions			2,048		4.39	%			4,276		4.84	%			4,018		4.12	%			----		----
Agency mortgage-backed securities,<br><br> <br>residential			179		3.15	%			79,038		2.43	%			14,954		1.82	%			----		----
Total securities		$	6,839		3.12	%		$	91,845		2.53	%		$	23,982		1.98	%		$	----		----

Tax-equivalent adjustments of $73 have been made in calculating yields on obligations of states and political subdivisions using a 21% rate. Weighted average yields are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. Mortgage-backed securities, which have prepayment provisions, are assigned to a maturity category based on estimated average lives. Securities are shown at their fair values, which include the market value adjustments for available for sale securities.

Prior to 2020, the reinvestment rates on debt securities provided steady returns due to market rate increases. Short-term rate increases of 100 basis points in 2018 had a lagging, but positive, impact to the yield on average securities. As a result, the weighted average FTE yield on debt securities improved to 2.46% at December 31, 2019, as compared to 2.39% at December 31, 2018. Short-term rates began to decrease during the second half of 2019 and during the first quarter of 2020, in large part due to COVID-19. As a result, the weighted average FTE yield on debt securities decreased from 2.46% at December 31, 2019, to 2.11% at December 31, 2020. The Company’s focus will be to generate interest revenue primarily through loan growth, as loans generate the highest yields of total earning assets. Table III provides a summary of the securities portfolio by category and remaining contractual maturity. Issues classified as equity securities have no stated maturity date and are not included in Table III.

LOANS

In 2020, the Company's primary category of earning assets and most significant source of interest income, total loans, increased $75,890, or 9.8%, to $848,664. The increase in loan balances from year-end 2019 came primarily from the commercial loan portfolio, being partially offset by balance decreases in the residential real estate and consumer loan portfolios.

Management continues to place emphasis on its commercial lending, which generally yields a higher return on investment as compared to other types of loans. The commercial lending segment increased $88,982, or 27.6%, from year-end 2019, which came mostly from the commercial and industrial loan portfolio, which increased $57,669, or 57.7%, from year-end 2019. Commercial and industrial loans consist of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include service, retail and wholesale merchants. Collateral securing these loans includes equipment, inventory, and stock. Over 48% of the increase in commercial and industrial loans came from the origination of PPP loans. In response to COVID-19 during the first quarter of 2020, the Company was authorized to originate PPP loans under the CARES Act. PPP loans are guaranteed by the Small Business Administration (“SBA”) and have an interest rate of 1.0%, a two-year loan term to maturity, and principal and interest payments are deferred for six months from the date of disbursement. The Company originated $35,141 in PPP loans in 2020, $27,933 of which were still outstanding at December 31, 2020. The commercial real estate loan segment comprised the largest portion of the Company's total commercial loan portfolio at December 31, 2020, representing 61.6% of such portfolio. Commercial real estate consists of owner-occupied, nonowner-occupied and construction loans. Owner-occupied loans consist of nonfarm, nonresidential properties. A commercial owner-occupied loan is a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans of the Company include loans secured by hospitals, churches, and hardware and convenience stores. Nonowner-occupied loans are property loans for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property, such as apartment buildings, condominiums, hotels and motels. These loans are primarily impacted by local economic conditions, which dictate occupancy rates and the amount of rent charged. Commercial construction loans are extended to individuals as well as corporations for the construction of an individual property or multiple properties and are secured by raw land and the subsequent improvements. Commercial real estate also includes loan participations with other banks outside the Company’s primary market area. Although the Company is not actively seeking to participate in loans originated outside its primary market area, it has taken advantage of the relationships it has with certain lenders in those areas where the Company believes it can profitably participate with an acceptable level of risk. Commercial real estate loans totaled $253,449 at December 31, 2020, an increase of $31,313, or 14.1%, over the balance of commercial real estate loans at year-end 2019. Most of this growth came from nonowner-occupied loan originations, with balances increasing $33,125, or 25.2%, from year-end 2019. Nonowner-occupied loan originations during 2020 came mostly from the Waverly and Athens, Ohio and West Virginia market areas. Furthermore, construction loans related to one-to-four family residential homes, as well as multi-family residential and land development properties, increased $2,150, or 6.2%, from year-end 2019. Partially offsetting increases in the commercial nonowner-occupied and construction loan segment were larger payoffs from the owner-occupied loan segment, which decreased $3,962, or 7.1%, from year-end 2019.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

While management believes lending opportunities exist in the Company's markets, future commercial lending activities will depend upon economic and related conditions, such as general demand for loans in the Company's primary markets, interest rates offered by the Company, the effects of competitive pressure and normal underwriting considerations.

Loan Portfolio Composition
at December 31, 2020	at December 31, 2019

Partially offsetting commercial loan growth during 2020 were decreases within the Company’s consumer loan portfolio, which lowered by $8,317, or 5.9%, from year-end 2019. The Company’s consumer loans are primarily secured by automobiles, mobile homes, recreational vehicles and other personal property. Personal loans and unsecured credit card receivables are also included as consumer loans. The consumer loan portfolio during 2020 was impacted most by lower automobile loans, which decreased $8,529, or 13.4%, from year-end 2019. Automobile loans represent the Company's largest consumer loan segment at 41.8% of total consumer loans. Automobile loans decreased primarily as a result of COVID-19 and the stay-at-home orders that limited automobile sales within the Company’s market areas during 2020. Further limiting the volume of automobile loan originations were heightened incentives being offered from the captive auto finance companies in response to the pandemic. The remaining consumer loan portfolio increased $212, or 0.3%, from year-end 2019, led by increases in unsecured loans, partially offset by lower home equity lines of credit. The Company will continue to attempt to increase its auto lending segment while maintaining strict loan underwriting processes to limit future loss exposure. However, the Company will place more emphasis on loan portfolios (i.e. commercial and, to a smaller extent, residential real estate) with higher returns than auto loans. Indirect automobile loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Generating residential real estate loans remains a significant focus of the Company’s lending efforts. The residential real estate loan segment comprises the largest portion of the Company's overall loan portfolio at 36.0% and consists primarily of one-to-four family residential mortgages and carries many of the same customer and industry risks as the commercial loan portfolio. During 2020, residential real estate loans decreased $4,775, or 1.5%, as compared to year-end 2019. The decrease in residential real estate loans was largely from the Bank's warehouse lending balances. Warehouse lending consists of a line of credit provided by the Bank to another mortgage lender that makes loans for the purchase of one-to-four family residential real estate properties. The mortgage lender eventually sells the loans and repays the Bank. As mortgage refinancings reached their peak during the second and third quarters of 2020, the volume of warehouse lending balances decreased during the fourth quarter of 2020, finishing at $18,786 at December 31, 2020, as compared to $24,128 at December 31, 2019. The heavy volume of mortgage refinancings also caused a shift into more long-term fixed-rate mortgages (up $3,679) and less short-term adjustable-rate mortgages (down $5,786) at year-end 2020. As part of management’s interest rate risk strategy, the Company sold the majority of its long-term fixed-rate residential mortgages to the Federal Home Loan Mortgage Corporation, while maintaining the servicing rights for those mortgages.

The Company will continue to follow its secondary market strategy until long-term interest rates increase to a range that falls within an acceptable level of interest rate risk for the Company. Furthermore, the Company will continue to monitor the pace of its loan volume and will remain consistent in its approach to sound underwriting practices with a focus on asset quality.

ALLOWANCE FOR LOAN LOSSES

Tables IV and V have been provided to enhance the understanding of the loan portfolio and the allowance for loan losses. Management evaluates the adequacy of the allowance for loan losses quarterly based on several factors, including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience, and management's estimate of probable incurred losses. Management continually monitors the loan portfolio to identify potential portfolio risks and to detect potential credit deterioration in the early stages, and then establishes reserves based upon its evaluation of these inherent risks. Actual losses on loans are reflected as reductions in the reserve and are referred to as charge-offs. The amount of the provision for loan losses charged to operating expenses is the amount necessary, in management's opinion, to maintain the allowance for loan losses at an adequate level that is reflective of probable and inherent loss. The allowance required is primarily a function of the relative quality of the loans in the loan portfolio, the mix of loans in the portfolio and the rate of growth of outstanding loans. Impaired loans, which include loans classified as TDRs, are considered in the determination of the overall adequacy of the allowance for loan losses.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management continues to focus on improving asset quality and lowering credit risk while working to maintain its relationships with its borrowers. During 2020, the Company’s allowance for loan losses increased $888, or 14.2%, to $7,160, compared to $6,272 at year-end 2019. The allowance was impacted by a new risk factor that was added to the evaluation of the allowance for loan losses during the first quarter of 2020 pertaining to COVID-19. The risk factor was necessary to account for the changes in economic conditions resulting from increases in unemployment that would produce higher anticipated losses as a result of COVID-19. Given that the economic scenarios had deteriorated significantly since the pandemic was declared in early March, it was determined the credit risk in the loan portfolio had increased, resulting in the need for an additional reserve for credit loss. As a result, the general reserve allocation related to COVID-19 totaled $2,315 (0.28% of total loans) at December 31, 2020. While the Company has yet to experience any significant charge-offs related to COVID-19, the continued uncertainty regarding the severity and duration of the pandemic and the related economic effects arising therefrom, including those that arise in connection with any stimulus programs, will continue to impact the Company’s estimate of its allowance for loan losses and resulting provision expense.

Excluding the new risk factor from COVID-19, the Company experienced decreases in other general allocations of the allowance for loan losses, which finished at $4,845 in 2020, compared to $5,465 in 2019. As part of the Company’s quarterly analysis of the allowance for loan losses, management reviewed various factors that directly impact the general allocation needs of the allowance, which include: historical loan losses, loan delinquency levels, local economic conditions and unemployment rates, criticized/classified asset coverage levels and loan loss recoveries. From year-end 2019, the Company’s historical loss factor increased by 1 basis point in 2020 from 0.23% to 0.24%, while the economic risk factor decreased by 12 basis points from 0.46% to 0.34%, which contributed to lower general allocations of the allowance for loan losses at December 31, 2020. The increase in the average historical loss factor was impacted by lower annualized loan recoveries during the year ended December 31, 2020, as well as an increase in average net charge-offs to average loans from 0.19% at year-end 2019 to 0.26% at year-end 2020. This was completely offset by a lower classified asset risk factor from year-end 2019, impacted by various commercial loan upgrades as a result of improvements in the financial performance of certain borrowers’ ability to repay their loans. This contributed to lower classified assets from year-end 2019, particularly within the commercial nonowner-occupied and commercial and industrial loan segments. Furthermore, the Company’s delinquency levels decreased from year-end 2019, with nonperforming loans to total loans of 0.82% at December 31, 2020, compared to 1.30% at December 31, 2019, and lower nonperforming assets to total assets of 0.59% at December 31, 2020, compared to 1.04% at year-end 2019. The large increase in PPP loans during 2020 had minimal to no impact on the general allocations of the allowance for loan losses due to those loans being fully guaranteed by the SBA.

Specific allocations of the allowance for loan losses identify loan impairment by measuring fair value of the underlying collateral and the present value of estimated future cash flows. At year-end 2020, the Company identified no impairment on loans being specifically evaluated, as compared to $807 in specific allocations at year-end 2019. The change in specific reserves from year-end 2019 was primarily attributable to the loan payoff of one commercial borrower during the first quarter of 2020.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

Table IV

(dollars in thousands)	Years Ended December 31
	2020			2019			2018			2017			2016
Commercial loans^(1)^	$	4,207		$	3,375		$	3,249		$	4,002		$	5,222
Percentage of loans to total loans		48.44	%		41.68	%		42.41	%		41.66	%		42.81	%
Residential real estate loans		1,480			1,250			1,583			1,470			939
Percentage of loans to total loans		36.00	%		40.15	%		39.13	%		40.19	%		38.92	%
Consumer loans^(2)^		1,473			1,647			1,896			2,027			1,538
Percentage of loans to total loans		15.56	%		18.17	%		18.46	%		18.15	%		18.27	%
Allowance for loan losses	$	7,160		$	6,272		$	6,728		$	7,499		$	7,699
		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%
Ratio of net charge-offs to average loans		.26	%		.19	%		.23	%		.37	%		.28	%

The above allocation is based on estimates and subjective judgments and is not necessarily indicative of the specific amounts or loan categories in which losses may ultimately occur.

(1) Includes commercial and industrial and commercial real estate loans.

(2) Includes automobile, home equity and other consumer loans.

SUMMARY OF NONPERFORMING, PAST DUE AND RESTRUCTURED LOANS

Table V

(dollars in thousands)	At December 31
	2020			2019			2018			2017			2016
Impaired loans	$	11,026		$	17,135		$	12,618		$	18,108		$	22,709
Past due 90 days or more and still accruing		424			889			1,067			334			327
Nonaccrual		6,503			9,149			8,677			10,112			8,961
Accruing loans past due 90 days or more to total loans		.05	%		.12	%		.14	%		.04	%		.04	%
Nonaccrual loans as a % of total loans		.77	%		1.18	%		1.11	%		1.32	%		1.22	%
Impaired loans as a % of total loans		1.30	%		2.22	%		1.62	%		2.35	%		3.09	%
Allowance for loan losses as a % of total loans		.84	%		.81	%		.87	%		.97	%		1.05	%

The impaired loan disclosures are comparable to the nonperforming loan disclosures except that the impaired loan disclosures do not include single-family residential or consumer loans which are analyzed in the aggregate for loan impairment purposes. All of the Company’s troubled debt restructurings are classified as impaired.

Management formally considers placing a loan on nonaccrual status when collection of principal or interest has become doubtful. Furthermore, a loan should not be returned to the accrual status unless either all delinquent principal or interest has been brought current or the loan becomes well secured and is in the process of collection.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MATURITY AND REPRICING DATA OF LOANS

As of December 31, 2020

Table VI

(dollars in thousands)	MATURING / REPRICING
	Within One Year		After One but Within Five Years		After Five Years		Total
Residential real estate loans	$	75,246	$	155,908	$	74,324	$	305,478
Commercial loans^(1)^		139,261		197,860		74,020		411,141
Consumer loans^(2)^		40,791		64,961		26,293		132,045
Total loans	$	255,298	$	418,729	$	174,637	$	848,664
Loans maturing or repricing after one year with:
---	---	---
Variable interest rates	$	326,723
Fixed interest rates		266,643
Total	$	593,366

(1) Includes commercial and industrial and commercial real estate loans.

(2) Includes automobile, home equity and other consumer loans.

At December 31, 2020, the ratio of the allowance for loan losses increased to 0.84%, compared to 0.81% at December 31, 2019. Management believes that the allowance for loan losses at December 31, 2020, was adequate and reflected probable incurred losses in the loan portfolio. There can be no assurance, however, that adjustments to the allowance for loan losses will not be required in the future. Changes in the circumstances of particular borrowers, as well as adverse developments in the economy, particularly with respect to COVID-19, are factors that could change, and management will make adjustments to the allowance for loan losses as needed. Asset quality will continue to remain a key focus of the Company, as management continues to stress not just loan growth, but also quality in loan underwriting. Future provisions to the allowance for loan losses will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail below under the caption “Critical Accounting Policies - Allowance for Loan Losses” within this Management’s Discussion and Analysis.

DEPOSITS

Deposits are used as part of the Company’s liquidity management strategy to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and to fund ongoing operations. Deposits, both interest- and noninterest-bearing, continue to be the most significant source of funds used by the Company to support earning assets. Deposits are attractive sources of funding because of their stability and general low cost as compared to other funding sources. The Company seeks to maintain a proper balance of core deposit relationships on hand while also utilizing various wholesale deposit sources, such as brokered and internet CD balances, as an alternative funding source to manage efficiently the net interest margin. Deposits are influenced by changes in interest rates, economic conditions and competition from other banks. Table VII shows the composition of total deposits as of December 31, 2020, 2019 and 2018. Total deposits increased $172,268, or 21.0%, from year-end 2019 to $993,739 at December 31, 2020. This significant increase was largely attributable to an inflow of funds from government stimulus programs such as the PPP and other consumer economic impact payments.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Total deposits consist mostly of “core” deposits, which include noninterest-bearing deposits, as well as interest-bearing demand, savings, and money market deposits. The Bank focuses on core deposit relationships with consumers from local markets who can maintain multiple accounts and services at the Bank. The Company believes such core deposits are more stable and less sensitive to changing interest rates and other economic factors. The increase in total deposits came primarily from noninterest-bearing balances, which increased $92,170, or 41.4%, from year-end 2019. The increase came mostly from the Company’s business and incentive-based checking account balances.

Higher deposits also came from interest-bearing deposits, which increased $80,098, or 13.4%, from year-end 2019. The increase in interest-bearing deposit balances came mostly from the Company’s money market account balances, which were up $36,427, or 27.9%, from year-end 2019. This increase was caused by a shift in consumer preference to the new Prime Investment account, a more competitive, higher-costing money market product that was introduced in December 2018. This increase was partially offset by a decrease in brokered money market balances due to a favorable liquidity position from elevated retail deposits. NOW account balances were also up $26,930, or 17.0%, from year-end 2019, largely driven by higher municipal NOW product balances within the Gallia County, Ohio, and Mason County, West Virginia, market areas. Savings deposits also increased $19,838, or 19.8%, from year-end 2019. The increases came primarily from higher statement savings account balances impacted by the government stimulus proceeds previously mentioned.

Composition of Total Deposits
at December 31, 2020	at December 31, 2019

Increases in interest-bearing deposit balances were partially offset by lower time deposits, which include CDs and individual retirement accounts. Total time deposits decreased $3,097, or 1.5%, from year-end 2019. This decrease came largely from the Company's retail CDs, which decreased $6,020, or 3.4% from year-end 2019. The Company had experienced a resurgence in consumer demand for CDs during 2018, caused by a rise in market rates that resulted in competitive CD rate offerings. After experiencing a large volume of retail CD deposits during 2018, new growth in CDs during 2019 began to normalize, while market rates began to move back down. Entering 2020, the FRB reduced short-term rates by 150 basis points due to COVID-19, which contributed to more decline in product rate offerings in 2020. This contributed to the decrease in CD balances from year-end 2019. While the Company's preference is to fund earning asset demand with retail core deposits, wholesale deposits are utilized to help satisfy earning asset growth. With consumers having invested less into CD balances during 2020, the Company’s brokered and internet CD issuances increased $2,923, or 9.3%, from year-end 2019. The Company will continue to evaluate its use of wholesale deposits to manage the Company’s liquidity position and interest rate risk associated with longer-term, fixed-rate asset loan demand.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DEPOSITS

Table VII

	As of December 31
(dollars in thousands)	2020		2019		2018
Interest-bearing deposits:
NOW accounts	$	185,364	$	158,434	$	155,166
Money market		166,812		130,385		121,294
Savings accounts		120,125		100,287		116,574
IRA accounts		40,613		41,898		43,249
Certificates of deposit		166,048		167,860		172,600
		678,962		598,864		608,883
Noninterest-bearing deposits:
Demand deposits		314,777		222,607		237,821
Total deposits	$	993,739	$	821,471	$	846,704

The Company will continue to experience increased competition for deposits in its market areas, which could challenge its net growth. The Company will continue to emphasize growth and retention within its core deposit relationships during 2021, reflecting the Company’s efforts to reduce its reliance on higher cost funding and improving net interest income.

OTHER BORROWED FUNDS

The Company also accesses other funding sources, including short-term and long-term borrowings, to fund potential asset growth and satisfy short-term liquidity needs. Other borrowed funds consist primarily of FHLB advances and promissory notes. During 2020, other borrowed funds were down $6,128, or 18.0%, from year-end 2019. The decrease was related primarily to the principal repayments applied to various FHLB advances during 2020. Furthermore, the Company took advantage of its heightened liquidity position in the second and fourth quarters of 2020 to apply an additional $1,723 in principal prepayments to various FHLB advances to further reduce interest expense on higher-cost funding sources. While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize FHLB advances and promissory notes to help manage interest rate sensitivity and liquidity.

SUBORDINATED DEBENTURES

The Company received proceeds from the issuance of one trust preferred security on March 22, 2007, totaling $8,500 at a fixed rate of 6.58%. The trust preferred security is now at an adjustable rate equal to the 3-month LIBOR plus 1.68%. The Company does not report the securities issued by the trust as a liability, but instead, reports as a liability the subordinated debenture issued by the Company and held by the trust.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OFF-BALANCE SHEET ARRANGEMENTS

As discussed in Notes I and L to the financial statements at December 31, 2020, the Company engages in certain off-balance sheet credit-related activities, including commitments to extend credit and standby letters of credit, which could require the Company to make cash payments in the event that specified future events occur. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party. While these commitments are necessary to meet the financing needs of the Company’s customers, many of these commitments are expected to expire without being drawn upon. Therefore, the total amount of commitments does not necessarily represent future cash requirements. Management does not anticipate that the Company’s current off-balance sheet activities will have a material impact on the results of operations or financial condition.

CAPITAL RESOURCES

Federal regulators have classified and defined capital into the following components: (i) Tier 1 capital, which includes tangible shareholders’ equity for common stock, qualifying preferred stock and certain qualifying hybrid instruments, and (ii) Tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt, preferred stock and hybrid instruments which do not qualify as Tier 1 capital.

In September 2019, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies). Under the rule, a qualifying community banking organization (“QCBO”) is eligible to opt into the Community Bank Leverage Ratio (“CBLR”) framework in lieu of the Basel III capital requirements if it has less than $10 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposure and a leverage ratio greater than 9.0%. The final rule became effective on January 1, 2020 and was elected by the Bank as of March 31, 2020. Therefore, the Bank will not be required to comply with the Basel III capital requirements.

A QCBO opting into the CBLR framework must maintain a CBLR of 9.0%, subject to a two quarter grace period to come back into compliance, provided that the QCBO maintains a leverage ratio of more than 8.0% during the grace period. A QCBO failing to satisfy these requirements must comply with the existing Basel III capital requirements as implemented by the banking regulators in July 2013.

The numerator of the CBLR is Tier 1 capital, as calculated under present rules. The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital.

Pursuant to the CARES Act, the federal banking regulators in April 2020 issued interim final rules to set the CBLR at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the CBLR will increase to 8.5% for the calendar year. QCBOs will have until January 1, 2022 before the CBLR requirement will return to 9%.

As detailed in Note P to the financial statements at December 31, 2020, both the Company and the Bank were deemed to be “well capitalized” under applicable prompt corrective action regulations. Total shareholders' equity at December 31, 2020 of $136,324 increased $8,145, or 6.4%, as compared to $128,179 at December 31, 2019. Capital growth during 2020 came primarily from year-to-date net income of $10,259, less dividends paid of $4,022. Capital growth during 2020 also came from a $1,908 increase in net unrealized gains on available for sale securities from year-end 2019, as market rates decreased during 2020 causing an increase in the fair value of the Company’s investment portfolio.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY

Liquidity relates to the Company's ability to meet the cash demands and credit needs of its customers and is provided by the ability to readily convert assets to cash and raise funds in the market place. Total cash and cash equivalents, held to maturity securities maturing within one year, and available for sale securities, which totaled $252,641, represented 21.3% of total assets at December 31, 2020 compared to $158,315 and 15.6% of total assets at December 31, 2019. The COVID-19 pandemic had a significant impact on higher levels of excess funds in 2020, which included customer deposits of stimulus monies from various government relief programs. To further enhance the Bank’s ability to meet liquidity demands, the FHLB offers advances to the Bank. At December 31, 2020, the Bank could borrow an additional $102,656 from the FHLB, of which $100,000 could be used for short-term, cash management advances. Furthermore, the Bank has established a borrowing line with the Federal Reserve. At December 31, 2020, this line had total availability of $59,103. Lastly, the Bank also has the ability to purchase federal funds from a correspondent bank. For further cash flow information, see the condensed consolidated statement of cash flows above. Management does not rely on any single source of liquidity and monitors the level of liquidity based on many factors affecting the Company’s financial condition.

INFLATION

Consolidated financial data included herein has been prepared in accordance with US GAAP. Presently, US GAAP requires the Company to measure financial position and operating results in terms of historical dollars with the exception of securities available for sale, which are carried at fair value. Changes in the relative value of money due to inflation or deflation are generally not considered.

In management's opinion, changes in interest rates affect the financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not change at the same rate or in the same manner as the inflation rate. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as monetary and fiscal policies. A financial institution's ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in today's volatile economic environment. The Company seeks to insulate itself from interest rate volatility by ensuring that rate sensitive assets and rate sensitive liabilities respond to changes in interest rates in a similar time frame and to a similar degree.

CRITICAL ACCOUNTING POLICIES

The most significant accounting policies followed by the Company are presented in Note A to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those that are highly dependent on subjective or complex judgments, estimates, and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the adequacy of the allowance for loan losses and goodwill to be critical accounting policies.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Allowance for Loan Losses:

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans generally consist of loans with balances of $200 or more on nonaccrual status or nonperforming in nature. Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

CONTRACTUAL OBLIGATIONS

Table VIII

The following table presents, as of December 31, 2020, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

	Payments Due In
(dollars in thousands)	Note Reference		Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
Deposits without a stated maturity		G	$	787,078	$	----	$	----	$	----	$	787,078
Consumer and brokered time deposits		G		136,634		65,404		4,436		187		206,661
Other borrowed funds		I		6,332		5,225		4,070		12,236		27,863
Subordinated debentures		J		----		----		----		8,500		8,500
Lease obligations				151		168		39		----		358
Total			$	930,195	$	70,797	$	8,545	$	20,923	$	1,030,460

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The general component covers non-impaired loans and impaired loans that are not individually reviewed for impairment and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 3 years for the consumer and real estate portfolio segment and 5 years for the commercial portfolio segment. The total loan portfolio's actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: Commercial Real Estate, Commercial and Industrial, Residential Real Estate, and Consumer.

KEY RATIOS

Table IX


Return on average assets	.94	%	.96	%	1.12	%	.74	%	.77	%
Return on average equity	7.83	%	8.10	%	10.63	%	6.95	%	7.05	%
Dividend payout ratio	39.20	%	40.37	%	33.20	%	52.36	%	51.79	%
Average equity to average assets	11.95	%	11.82	%	10.57	%	10.66	%	10.91	%

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Commercial real estate consists of nonfarm, nonresidential loans secured by owner-occupied and nonowner-occupied commercial real estate as well as commercial construction loans. An owner-occupied loan relates to a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing business operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans that are dependent on cash flows from operations can be adversely affected by current market conditions for their product or service. A nonowner-occupied loan is a property loan for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property. Nonowner-occupied loans that are dependent upon rental income are primarily impacted by local economic conditions which dictate occupancy rates and the amount of rent charged. Commercial construction loans consist of borrowings to purchase and develop raw land into one-to-four family residential properties. Construction loans are extended to individuals as well as corporations for the construction of an individual or multiple properties and are secured by raw land and the subsequent improvements. Repayment of the loans to real estate developers is dependent upon the sale of properties to third parties in a timely fashion upon completion. Should there be delays in construction or a downturn in the market for those properties, there may be significant erosion in value which may be absorbed by the Company.

Residential real estate loans consist of loans to individuals for the purchase of one-to-four family primary residences with repayment primarily through wage or other income sources of the individual borrower. The Company’s loss exposure to these loans is dependent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination.

Consumer loans are comprised of loans to individuals secured by automobiles, open-end home equity loans and other loans to individuals for household, family, and other personal expenditures, both secured and unsecured. These loans typically have maturities of 6 years or less with repayment dependent on individual wages and income. The risk of loss on consumer loans is elevated as the collateral securing these loans, if any, rapidly depreciate in value or may be worthless and/or difficult to locate if repossession is necessary. During the last several years, one of the most significant portions of the Company’s net loan charge-offs have been from consumer loans. Nevertheless, the Company has allocated the highest percentage of its allowance for loan losses as a percentage of loans to the other identified loan portfolio segments due to the larger dollar balances associated with such portfolios.

Goodwill:

Goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected December 31 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on the Company’s balance sheet. No impairment to Goodwill was indicated based on year-end testing.

CONCENTRATIONS OF CREDIT RISK

The Company maintains a diversified credit portfolio, with residential real estate loans currently comprising the most significant portion. Credit risk is primarily subject to loans made to businesses and individuals in southeastern Ohio and western West Virginia. Management believes this risk to be general in nature, as there are no material concentrations of loans to any industry or consumer group. To the extent possible, the Company diversifies its loan portfolio to limit credit risk by avoiding industry concentrations.

Ohio Valley Banc Corp.

Email: investorrelations@ovbc.com

Web: www.ovbc.com

Phone: 1-800-468-6682

Headquarters: 420 Third Avenue, Gallipolis, Ohio

Traded on The NASDAQ Global Market

Symbol OVBC

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

NAME	STATE OF<br><br> <br>INCORPORATION	PERCENTAGE<br><br> <br>OF OWNERSHIP
The Ohio Valley Bank Company	Ohio	100%
Loan Central, Inc.	Ohio	100%
Ohio Valley Financial Services Agency, LLC	Ohio	100%
Ohio Valley Statutory Trust III	Delaware	100%
OVBC Captive, Inc.	Nevada	100%

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-178575 on Form S-3 of Ohio Valley Banc Corp. of our report dated March 24, 2021 relating to the financial statements appearing in this Annual Report on Form 10-K.

	/s/Crowe LLP
	Crowe LLP
Louisville, Kentucky
March 24, 2021

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification

I, Thomas E. Wiseman, certify that:

I have reviewed this Annual Report on Form 10-K of Ohio Valley Banc Corp.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated<br> subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability<br> of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end<br> of the period covered by this report based on such evaluation; and
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(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,<br> the registrant’s internal control over financial reporting; and
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,<br> process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: March 24, 2021	By:	/s/Thomas E. Wiseman
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		Thomas E. Wiseman, Chief Executive Officer
		(Principal Executive Officer)

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification

I, Scott W. Shockey, certify that:

I have reviewed this Annual Report on Form 10-K of Ohio Valley Banc Corp.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material<br> information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the<br> effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that<br> has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial<br> reporting.
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Date: March 24, 2021	By:	/s/Scott W. Shockey
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		Scott W. Shockey, Senior Vice President and CFO
		(Principal Financial Officer)

Exhibit 32

SECTION 1350 CERTIFICATION

In connection with the Annual Report of Ohio Valley Banc Corp. (the “Corporation”) on Form 10‑K for the fiscal year ended December 31, 2020 (the “Report”), the undersigned Thomas E. Wiseman, Chief Executive Officer of the Corporation, and Scott W. Shockey, Senior Vice President and Chief Financial Officer of the Corporation, each certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
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*/s/Thomas E. Wiseman	*/s/Scott W. Shockey
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Thomas E. Wiseman	Scott W. Shockey
Chief Executive Officer	Senior Vice President and Chief Financial Officer
Dated: March 24, 2021	Dated: March 24, 2021
*	This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United<br> States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under<br> the Securities Act of 1933 or the Exchange Act, except to the extent that the Corporation specifically incorporates it by reference in any such filing.
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